The Case 2016

2 TDC Group The Case 2016 The Case 2016 CBS Case Competition 3

Table of Contents
Introduction and case overview 4

The global telco industry 6

The Danish landscape 10
A quick introduction to TDC Group 13
The setup today 18
Brands 22
Customer satisfaction 27

The four product categories

Mobile 32
TV 36
Broadband 40
Fixed Line 42

Closing remarks 44

Appendices
Financials 47
Infrastructure and Technology 48
Customer Segments 50
Customer Satisfaction 52
Mobile 53
TV 54
4 TDC Group The Case 2016 The Case 2016 CBS Case Competition 5

Introduction and
case overview
Our world is increasingly digital and every device Established industry incumbents have also had to deal TDC Group consistently presents solid EBITDA
we own is becoming connected with competition from small, agile startups who often margins, but revenue has kept declining
Today, most of us have access to a level of connectivity lease access to the incumbents’ network at regulated But TDC Group is under pressure Despite consistent
that seemed unimaginable only a few decades ago fees, further driving down market prices Simultaneous- EBITDA margin performance, one core objective has
In a matter of seconds, we are able to reach everyone ly, tech companies have become a powerful presence, remained elusive: revenue growth For years, the
we know — anywhere, anytime — on devices small as the traditional telco industry converges with the company has simultaneously lost customers and
enough to fit in our pockets. Our music no longer flows technology, media and entertainment industries So- seen revenue per customer decline, and the share
from CDs but from online applications. Our movies called “over-the-top” (OTT) players, including Facebook, price has lost circa forty percent of its value in the last
are not played back from discs but streamed from the Apple, and Netflix, provide instant messaging, voice year. Danes are cancelling their traditional fixed-line
web onto an ever-proliferating variety of devices, and communication, and entertainment platforms over phone subscriptions and shifting to mobile instead,
not just the TV. Our photos and videos are not stored existing networks — all the services that telcos used where market prices have fallen by as much as seventy
on bookshelves, but in the “cloud ” With more of our to offer exclusively. percent in the last decade In the TV market, viewers
devices becoming connected to the Internet, we are are opting out of the larger, more expensive channel
constantly online and demand connectivity around the In Denmark, TDC Group retains a strong position packages, and an increasing share of customers’
clock across the telco and entertainment markets viewing time has moved online to streaming services
In Denmark, TDC Group is the largest provider of telco such as HBO and Netflix.
Despite ever increasing connectivity, the telco and entertainment services The Group delivers
industry is under pressure services such as Broadband, Mobile and Fixed Line “We need to get our Danish activities in better shape
The telecommunications (telco) industry provides us telephony, as well as home entertainment services — our current situation is unsustainable. To keep invest-
with this connectivity: they connect our phone calls, including TV and video streaming TDC Group has a ing in the future development of Danish infrastructure,
supply our TV signals, ensure our emails arrive at their history stretching back 130 years to the first Danish we need a stable business situation as the foundation.”
destinations and allow us to link all our devices Despite phone lines and is considered Denmark’s “incumbent” — Pernille Erenbjerg, Group CEO and President.
the fact that we are becoming ever more connected, communications provider. Despite a fiercely competitive
and that demand for connectivity has exploded over market, TDC Group has managed to retain leading TDC Group’s position in the Danish market is unmatch-
the past couple of decades, many of the old telcos have market positions across all its core business areas by ed, and it has consistently presented positive results
come under intense pressure continually striving to offer better connectivity, better in spite of a declining market But operational
offerings, and a better customer experience. The Group improvements can only carry a business so far,
In the 1990s, deregulation swept through the telco has built and still owns much of Denmark’s current and the following vital question remains:
industry, which saw long-standing telco monopolies communications infrastructure, which delivers connec-
broken up and new competition introduced tions and content to millions of Danes In a highly How should TDC Group sustainably improve reve-
The result was large-scale cross-border consolidation, competitive Danish market, TDC Group is the industry’s nues in its Danish consumer divisions by the end
highly competitive battles for subscribers, and falling most profitable player and, compared to its European of 2018, while continuously balancing customer
prices as new players came into every market Regu- peers, has one of the highest EBITDA margins satisfaction with commercial viability?
lation is still omnipresent both at national levels, and
across borders, where the European Union has been
introducing stricter price regulation on international
calls and roaming >>
6 TDC Group The Case 2016 The Case 2016 CBS Case Competition 7

Internet of Things Cloud computing E-commerce

Devices and machines are connected to Everything is being stored in the cloud Online shopping is increasing across
each other, making homes programma- borders
ble and automated

The global Mobile Payment

Phones are becoming means of trans-
ferring money and making every day
Social networks
Social networks are changing the media
consumption of consumers
OTT & On-demand
OTT services are going directly to the
consumers giving them on-demand and

telco industry purchases free services over the top

Global shipments of Smartphones, Tablets,

Laptops and Desktop-PCs (units m)
Digital technology is an ever growing part of our lives Not only are Source: Statista 2016
new technologies proliferating at a rapid rate, but their adaption on
the part of consumers, businesses and governments is also happe-
2019e 2.423
ning at an accelerating pace Throughout the past six years, for
121 170 1.862 269
example, tablet ownership has grown faster than desktop computers
or laptops did when they were launched Smartphones have swept 2018e 2.468
through markets all around the globe and are no longer viewed as a 121 170 1.873 304
luxury reserved for the few, but as an essential device for everyday life
2017e 2.306
123 197 1.579 407
Lately, a new element is becoming increasingly integral to digital
technology: connectivity The term captures the core service provided 2016e 2.139
by the telco industry: connecting people to technology and to each 127 202 1.435 375
other This evolution in connectivity has been driven by technology
During the past century, mankind first learned to transmit sound 2015 2.088

and, later, video, bringing us phones and television In the 1980s, 129 194 1.433 332
the Internet was invented, and we became able to transmit any type
2014 1.840
of data through cables. Today, connectivity is no longer confined
134 174 1.302 230
to computers or even smartphones, but is also rapidly spreading to
cars, washing machines, refrigerators, watches, industrial equipment, 2013 1.562
and a nearly infinite universe of other machines and appliances 134 181 1.020 227
— the so-called “Internet of Things ”
2012 1.219
Desktop-PCs
148 201 725 145
We have never spent so much time in front of screens — TVs,
laptops, smartphones, or tablets — and our data traffic is growing 2011 935 Laptops
at an increasingly rapid pace across all platforms In 2014, the total 155 209 495 76
mobile data traffic was higher than the entire Internet traffic in 2008. Smartphones
We may very well be on the brink of a new era in which everything 2010 682
Tablets
can be accessed everywhere, at any time and across any device >> 157 201 305 19
 The Case 2016 CBS Case Competition 9

>>

Connectivity and the telco industry and dramatically more competitive environment Particularly across
At the center of connectivity is the telco industry, the EU, state telecom monopolies were privatized as government
which provides us with services such as Mobile and ownership was dramatically reduced or eliminated altogether and
Fixed Line phone connections, Broadband and TV The ownership passed into the hands of market investors Simultaneously,
communications industry basically consists of two market access was eased for new, often aggressive, competitors to
elements: infrastructure and services Providing the offer the types of communications services that had historically been
foundation for connectivity, telco companies raise dominated by the incumbents. Mobile Virtual Network Operators
mobile masts, dig cables into the ground and pull lines (MVNO) — companies that lease access to incumbents’ wireless
through our homes. On top of that, they provide many infrastructure at regulated wholesale prices — entered the market
of the services we use these connections for We rely with no-frills subscriptions and intensely pressured existing market
on them to connect our phone calls, provide access pricing levels All across the industry, prices have dramatically fallen
to TV channels, and process our data traffic. Further, from the levels that existed before incumbents were privatized and
many telcos are supplementing their core services markets deregulated
by offering entertainment options such as video, TV,
music streaming, and more The second major (and more recent) shift, has been the rise of “OTT”
(over-the-top) services This phenomenon derives from a technology-
Balancing the challenges of offering both the in- enabled decoupling of infrastructure and services, implying that
frastructure and the services that leverage these every type of service telcos offer can also be delivered online. This
networks is no easy task Building, maintaining, and has prompted competition from technology firms that provide voice,
expanding infrastructure is inherently a long-term ef- messaging, music, and video content at a fraction of the price online
fort involving substantial investments with horizons of Consumers are getting used to the ease and on-demand nature
up to twenty years Meanwhile, the market for services of such services For example, TV series used to be broadcast at a
is constantly evolving, as changing consumer prefer- specific time, but today, most can be streamed whenever it suits
ences, media landscapes, and technology platforms the viewer and watched on whatever device is the most convenient
force telcos and other communications companies Not surprisingly, these OTT players are increasingly gaining momen-
to constantly adapt their propositions and find new tum. In 2014, more than half of all worldwide data traffic came from
solutions to customer demands video streaming via OTT services such as YouTube and Netflix, and
today more messages are delivered globally through WhatsApp than
Pressure on the telco industry through SMS
Despite their pivotal role in the digitalization of society,
and our increasing utilization of technology and As a consequence, incumbent telcos all over the world are searching
consumption of digital entertainment, the telco industry for ways to stay on top of constantly changing consumer patterns
has never been under greater pressure Two shifts, in and evolving technological possibilities, to find new sources of reve-
particular, have shaken up the industry in the past nues without losing focus on their classic services, from which they
decades and continue to do so still generate most of their income

The first major shift occured in the early nineties

when national deregulation set the scene for a new

Voice

Messaging iMessage

Music Streaming

Video Streaming

Examples of OTT services entering traditional telco and communication provider industry Source: CBS Case Competition
10 TDC Group The Case 2016 The Case 2016 CBS Case Competition 11

Monthly price of cheapest Mobile and Fixed Line subscription in the Danish market
Source: Telestatistik 2014, 2015

DKK
300

The Danish 250

200
217

206
214 214
240

203

landscape 150
123
150

107
99 99
100 91
79 79
61 65
The Danish telco industry is among the most competitive in the world starting to show in the Broadband market as well, after 81
In this small, densely populated country of a little more than five regulators have lowered wholesale prices for players 50
million people, competition has rapidly intensified in recent decades. renting network access from established players
Even though Denmark is among the richest countries in the world, a
0 Year
typical Danish mobile subscription costs about a fifth of the price for Competitive pressure in the TV market has increased
a subscription in the US, and about half of the price in the UK too. Customer adoption of international OTT services 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
such as Netflix and HBO, and new OTT services from
No less than three foreign telcos have entered Denmark since the the largest Danish TV broadcasters (DR and TV2) Fixed Line Mobile

market was deregulated in the 1990s, typically offering Mobile and are changing consumer TV habits and driving “cable
Monthly price of cheapest Broadband subscription in the Danish market
Fixed Line services but also expanding into Broadband and TV shaving” (down-migration to smaller TV packages)
Source: Telestatistik 2014, 2015
Furthermore, a number of Utilities (typically power companies) have and “cable cutting” (cancellation of TV subscriptions)
also been building out their own network infrastructure These trends pressure TV providers to respond with DKK
more competitive offers, giving customers better value 400
Since telco is an industry in which there are large benefits from econ- and more flexibility in how they choose to consume
348
omies of scale, market challengers have sought to aggressively lower their TV programming 350
their prices in order to win more customers and spread their fixed
costs over a larger subscriber base However, apart from TDC Group, 300
none of the foreign market entrants are generating any significant 249 249
profits due to the fierce price competition. 250 249

“In three years, the total value of the Danish telco market has decreased 199 199
188
200 179 179
by approximately 20 percent.”
— Pernille Erenbjerg, Group CEO and President.
156 150
148 179
150

Foreign operators have not been the only players to introduce new
competition into the Danish communications market Between 100
2000 and 2010, a large number of Mobile Virtual Network Opera-
79 77
tors (MVNOs) were created to offer cheap Mobile services to danes. 50 66
The MVNOs leased network infrastructure from existing operators
rather than building their own They entered the mobile market with
0 Year
heavy marketing and aggressive call center campaigns, offering no-
2010 2011 2012 2013 2014 2015
frills subscriptions at previously unseen, low prices The downward
pressure they exerted on prices pushed down the value of the mobile
market, and has continued until today, although most of the MVNOs BB Min. 2.048/512 kbit/s BB Min. 10/1 Mbit/s

have been acquired by the traditional telcos This pattern of

BB Min. 20/2 Mbit/s Mobile BB min 3.000/284 kbit/s
fierce price competition is not confined to the mobile sector, but is
12 TDC Group The Case 2016 The Case 2016 CBS Case Competition 13

TDC Group TeliaSonera Telenor Hi3G Utilities Boxer

(multiple)

Description The oldest and TeliaSonera is the As the Norwegian Hi3G, known as ‘3’, A number of Boxer is among the
largest company in result of a merger incumbent, entered Denmark regionally based largest TV provid-
the Danish market, between the Swed- Telenor’s Danish in 2003 Its own- Danish power ers in Denmark,
TDC Group has ish and Finnish presence is the re- ers are based in companies have and has positioned

A quick introduction
built out much telco incumbents, sult of acquisitions Hong Kong Unlike installed fiber themselves as
of Denmark’s and entered in the 2000s It is other operators, infrastructure1 and an a la carte TV
communications Denmark in 1995 the largest Nordic Hi3G is focused on use it to supply channel provider
infrastructure, and They are among telecoms company mobile services, households with They have also ex-

to TDC Group
retains leading po- the ten largest Eu- with activities in particularly target- broadband or TV, panded to provide
sitions across all ropean telcos, with Europe and Asian ing customers with often in common broadband
segments Focused activities in 18 emerging markets high data usage brands Main
on the Nordics, countries including requirements It is players are Stofa
predominantly in the Baltics and also present in a (SE), SEAS-NVE,
Denmark, Norway Eurasia number of other Bredbånd Nord
and Sweden European markets
including Sweden Among the Danish market players, one particular company stands
out: TDC Group It is the oldest, and remains, by far, the largest
Danish telecommunications and entertainment provider The history
Consumer 11 536 4 900 4 426 928 435 621 of TDC Group goes back to the opening of the first phone central in
Revenue in (incl business rev) Copenhagen in 1882 Soon afterward, centrals began appearing in
DKK m, ‘14 other parts of the country, leading to the formation of four different
regional telcos, each granted a sole provider license by the state
Over the next century, each of them continued to expand the phone
EBITDA, ‘14 7 9142 656 646 358 43 12 network in their regions, and over the 1980s and 1990s, mobile
(incl business rev) phone coverage, cable TV, and dial-up Internet connections were
gradually added

Products Mobile, Fixed Line, Mobile, Fixed Line, Mobile, Fixed Line, Mobile (including TV, Broadband and TV and Broadband Around that time, deregulation of the telco industry was sweeping
Broadband and TV Broadband and TV and Broadband mobile broadband) Mobile through Europe In 1990, the Danish parliament decided to merge
the four regional companies to form a Danish player able to com-
pete in international markets: TDC Group (back then known as Tele
Brands YouSee, TDC Brand Telia, Call Me, Telenor, CBB Mobil, 3, Oister, Zenji Stofa, Waoo Boxer Danmark) A few years later, the state sold the company, through the
(now merged in DLG Tele Bibob (merged Mobile world’s largest IPO outside a home market at the time. TDC Group
YouSee) Telmore, with CBB) then began expanding outside Denmark, while foreign telcos were
Fullrate simultaneously entering Denmark

In late 2005, five private equity funds joined forces under the banner
Network Has own infra- Shares mobile Shares mobile Has mobile radio The Utilities hold Boxer is transmit- of Nordic Telephone Company (NTC) to acquire TDC Group Following
infrastructure structure in all infrastructure and infrastructure with infrastructure, but fiber infrastructure ting TV through the acquisition, the company’s strategic focus shifted back toward
segments Rated backbone network TeliaSonera leases backbone in their respective masts to house- the Nordics and all of its European subsidiaries were eventually
as world’s best with Telenor access through regions, and lease holds equipped divested During this period, TDC Group went through an extensive
mobile network other operators access to other with antennas The transformation Through organizational optimization, a shift toward
4G. Offers DSL, operators mobile broadband service customer focus and the divestment of lower-margin overseas subsi-
cable coax and networks when is leased via TDC dies, the company’s EBITDA margin increased dramatically from 29
fiber needed Group’s network percent in 2006 to 42 percent in 2014 — the highest among
European peers. NTC gradually sold off its shares in TDC Group, and
1A communications infrastructure technology based on fiber-optic cables that transmit signals through light. Enables very high transmission speeds. the company returned to being a publicly traded company on the
2 Does not include operating expenses captured at the Group level. Danish stock exchange >>
14 TDC Group The Case 2016

<<
Following the exit of the private equity funds, TDC customer service experience Moreover, the 2016-
Group went through a series of tough years Since 2018 strategy sets ambitious targets for upgrading
2013, heavily pressured by aggressive competitors, the broadband infrastructure across the country,
tighter regulation, and a terminal decline in the num- through a program that will deliver speeds of 1 gigabit
ber of fixed-line phone subscriptions, it lost market per second (Gbps) to 50 percent of Danish households
share in three out of its four core product areas by 2017

In January 2016, TDC Group’s corporate management The financial target of the 2016-2018 strategy is
team unveiled an updated strategic plan focused on simple: to straighten out the previous year’s down-
the two measurable goals of providing best-in-class ward-sloping curves and put TDC Group back on a
customer satisfaction and improving its cash flow growth track before the end of 2018
generation within 2018 TDC Group’s new strategy
promises to deliver better connectivity, better offer-
ings, and better customer experience

“To realize our goals, we needed to reinvigorate our strat-

egy and intensify our execution focus. Our 2016-2018
strategy is therefore built on the guiding principle of
“Always Simpler and Better”. It describes what we will
strive for, in the way customers interact with us, as well
as how we organize ourselves and how we seek to oper-
ate as a streamlined business.”
— Pernille Erenbjerg, Group CEO and President.

The 2016-2018 strategy has wide implications across

the organization The executive management team has
been renewed, the brand portfolio is being simplified
through a merger of the two largest brands, and TDC
Group will work to significantly simplify its operating
model by standardizing internal processes, consoli-
dating IT platforms, and increasingly digitalizing the
 1882 1990 2000 2016
1950 1994 1996 2005 2013 2014

The telecom sector

becomes fully liber- NTC sells off their
The first phone alized in Denmark. last shares.
subscription central in
Copenhagen opens
and Kjøbenhavns Danish parliament, passes an act TeleDanmark
Telefon-Aktieselskab to create a parent company of changes name
(KTAS) – the roots of TDC Group and Huawei
the regional telecommunications to TDC Group. partner on establishing
TDC Group - is founded. companies – Tele Danmark world class 4G mobile
network.
NTC purchases 87.9 percent
of shares in TDC Group.
Divestments of European
Danish telecommunications assets follow.
are provided by four TDC Group merges
regional players their TDC and YouSee
brands, and partner
with Huawei to roll out
The world’s largest international share
1.000 Mbps broadband.
issue ever is initiated yielding DKK
18.5bn for Tele Danmark. The issue
comprises 40.000 Danish shareholders.
18 TDC Group The Case 2016 The Case 2016 CBS Case Competition 19

The setup today Pernille Erenbjerg

CEO

TDC Group Organization

Today, TDC Group operates in Denmark, Norway, and Sweden, and has more than
seven million subscribers across its four core product areas: Mobile services, Fixed-
Line, TV and Broadband. In addition, the company has a strong focus on offering the
best on-demand home entertainment and value-added services Every day, more
than eight thousand employees go to work at TDC Group, helping to connect people Stig Pastwa Louise Knauer
with technology, unite friends and families, and create new opportunities for busi- Group Finance Group Strategy &
(June 1st, 2016) Portfolio Mgmt.
nesses Simply put, their ambition is to provide leading communications and home
entertainment solutions in TDC Group’s core markets

TDC Group is organized into five different commercial divisions and four group func-
tions. The commercial divisions cover YouSee3, Online Brands and Business, as well
as all operations in Sweden and Norway (including the TV and Broadband operator,
Get, acquired in 2014). The Business Division offers integrated products and solu-
tions to all businesses from the smallest startup to the Danish public sector and
large multinational enterprises, while Danish consumers are served by the YouSee
Brand and Online Brands (see next pages). Together, the Danish consumer divisions
generate close to half of the total revenues Jens Aaløse Peter Trier Schleidt
CCO & Stake- Operations
holder relations
The Operations function builds and upgrades Denmark’s network infrastructure
while improving TDC Group’s productivity across the entire organization with a
strong digital agenda. TDC Group’s Chief Customer Officer has the overall responsi-
bility for customer relations, while the Group Chief Strategy Officer focuses on the
overall commercial and portfolio management (e g pricing and content)

In recent years, the consumer divisions have been under pressure due to a declining
overall market and price-driven competition for new customers Improving the reve-
nue performance in the two Danish consumer divisions will therefore be a vital part
of fulfilling TDC Group’s goal of getting back on a growth track by 2018. >>
René Brøchner Michael Moyell Juul Marina Lønning Gunnar Evensen Erik Heilborn
YouSee Online brands Business Norway Sweden
(Int ) (April 1st, 2016)

On the consumer markets, the

TDC Brand will be fully merged with the Erhverv Hosting
YouSee Brand beforeJune 30 2016.
3Covering the TDC Brand and the YouSee Brand until June 30 2016, where it will be merged under the YouSee Brand.
20 TDC Group The Case 2016 The Case 2016 CBS Case Competition 21

Average household churn, by number of main products in household

Disclaimer: An example of a Churn profile of a brand Source: TDC Group

Risk of household churn, in pct

-75%

<<
Differentiating TDC Group in a price-sensitive market
As the telco incumbent, TDC Group is legally obliged to provide
0%
competitors with access to their fixed infrastructure, at a wholesale
Single Play Dual Play Triple Play Quad Play
price set by the Danish Business Authority This roughly implies that
it is difficult to make a market price markup based on speed, stability
and connectivity, as all competitors have access to the same infra-
structure Instead, TDC Group continuously focuses on pushing the Consumer revenue split on products (DKKm)
competitive element away from price, and toward better customer Source: TDC Group
experiences, value added services and integrated communications Percent of total TDC Group revenue
and entertainment offerings. In addition, due to its size in the Danish
market, TDC Group is able to negotiate entertainment content agree-
50% 51% 46%
ments at more favorable terms than its competitors, which consti-
tutes a key competitive advantage 11.877
11.536
11.154
Customer focus, cross-selling and churn
As for any incumbent telecommunications and entertainment pro-
vider, one of the key priorities for TDC Group is to keep churn (the 3.020 2.788
2.611
cancellation of a customer subscription) low Even relatively small
changes in churn levels have a significant impact on the bottom line.
In addition, adding new customers can be quite expensive, both in the 1.466 1.243 1.072
TV and Broadband markets, due to cabling, installation, and modems,
but also in the mobile sector where telcos often have to partially
2.391 2.442
subsidize phone sales to acquire new customers 2.332

Equally important is a strong focus on providing each customer

with an integrated selection of products and services Cross-selling
different products to the same customer has an immediate impact
both in increasing average revenue per user (ARPU) and reducing the 4.078 4.170 4.240
risk of churn The same pattern holds for providing users with better
entertainment and value-added services

“If you move a customer from having only a mobile subscription to also 981 944 789
having broadband and TV, his churn probability decreases by more than
25 percent. If you add a music subscription on top of that, the churn rate 2013 2014 2015
decreases by another 25 percent.”
Mobile Fixed Line Broadband TV Other
— Michael Moyell Juul, SEVP, Online Brands.
22 TDC Group The Case 2016

Brands
TDC Group covers the Danish consumer market with YouSee – the household brand “Three important things should illustrate YouSee’s profile: the best
several different telco brands, each with its own YouSee will continue to be a full-service communica- entertainment offerings with the right content, the best broadband
profile and target segment. With the 2016-2018 tion and entertainment provider, covering all of TDC and the best customer experience. It is that DNA that sets us apart
strategy, the previous consumer division has been Group’s product categories, as well as providing access from our competitors”
split into two business lines: YouSee (consisting of the to a massive digital entertainment universe, available — René Brøchner, SEVP, YouSee.
YouSee brand and the TDC brand which are current- across all devices. YouSee’s core customer segment is
ly being merged) and Online Brands (Fullrate and families, and a main strategic objective is to increase The entertainment universe is at the core of YouSee. It aggregates
Telmore) The oldest consumer brand, TDC — carry- the number of household customers with a full entertainment from a broad range of Danish and international con-
ing the name of the group — will be phased out for product holding through strong integrated household tent providers, which can be accessed via YouSee TV and film apps for
consumers before July 1, 2016, with customers being solutions and cross-sales mobile and tablet, YouSee website, and a dedicated YouSee box that
migrated to YouSee. is connected to the TV. Via the entertainment universe, YouSee cus-
This is reflected in the product portfolio: custom- tomers can gain access to their TV channels, a large TV archive with
“The splitting of the Danish consumer group into two ers that group their TV, Mobile and Broadband with previously broadcast TV programs, as well as hundreds of movies
new business lines is made to sharpen our focus, and YouSee get 20 gigabytes (GB) mobile data included on and series from HBO Nordic, Nordisk Film (a Danish movie production
move closer to our customers — both in terms of top of their plans. Additionally, families are offered a company), and CMore (subscription-based video entertainment) In
product development and service levels.” discount on multiple mobile subscriptions addition, YouSee has its own music app, giving access to more than
— Pernille Erenbjerg, Group CEO and President. twenty million music tracks After Spotify, it is the most used music
“We are targeting families as a segment. They are loyal platform in Denmark
The YouSee brand has its roots as a supplier of cable customers who value bundled, integrated entertainment
TV and entertainment, and did not add Broadband and offerings that give access to content across all devices “Our investment in this app definitely paid off. Usage of the YouSee en-
Mobile until more recently. On the other hand, the TDC all the time. We are constantly focused on offering what tertainment platfom increased massively in 2015 and by now, more than
brand, which is now being merged with YouSee, start- families will value the most.” 25 percent of our customers are habitual users.”
ed with Fixed Line, then added Mobile and Broadband, — René Brøchner, SEVP, YouSee. — René Brøchner, SEVP, YouSee.
and later TV The TDC brand has a stronger reputation
as a ‘telco’ brand, whereas YouSee is more closely Basic subscriptions are priced in the high end of the Telmore and Fullrate – the online brands
associated with entertainment By merging the TDC market, but YouSee offers a broad range of value-add- TDC Group has two online telco brands — Fullrate and Telmore Both
brand into YouSee, TDC Group underlines the transfor- ed services on top of the basic telco offering to give have their roots in previous acquisitions made by TDC Group in the
mation from provider of telco to entertainment. Over customers more value for money. YouSee goes to 2000s With the 2016-2018 strategy, the two brands have been given
the next six months, it will be vital for the company the market through its website, call centers and full end-to-end responsibility for customer journeys, including online
to find the best possible way of migrating customers more than 45 brand stores (currently, the stores are platforms, sales channels, support, and IT development It is a key stra-
from the TDC brand to YouSee, while minimizing the TDC-branded, but will be changed to YouSee before tegic ambition for online brands to think digital first and excel in online
risk of customer churn the summer of 2016) activities, while ensuring an agile and cost-efficient operating model. >>
24 TDC Group The Case 2016 The Case 2016 CBS Case Competition 25

<<
Both brands have lower price points than their YouSee counterpart, Consumer Brand’s positions by target segment
but offer fewer added benefits. Neither Telmore nor Fullrate are price Source: TDC Group
leading, but are typically priced at par with, or just above, CBB and
Established/
CallMe (Telenor’s and Telia’s low-priced brands, respectively)
families

“With the reorganization, we wanted to bring Telmore and Fullrate back

to their online roots — they should not be traditional telcos.”
— Michael Moyell Juul, SEVP, Online Brands.

Fullrate targets the most price-conscious consumers, and offers

Broadband, Mobile, TV, and Fixed Line services. All offerings are
“no-frills” products, without any of the free value-added services that
YouSee offers — instead some of these services can be bought in
addition to the basic products

Telmore, on the other hand, is targeting the modern and urban

segment of the population with mobile-only solutions It has its own
music platform — Telmore Music — that is essentially similar to the
YouSee and TDC Group-branded music platforms. In addition, sub-
scribers can buy access to “Telmore Play,” which bundles a range of
third-party entertainment offerings with a mobile subscription. With
Telmore Play, customers are given login access to a number of SVoDs
(Subscription Video on Demand), such as HBO Nordic, TV2 Play, and Young/single
C-More, an e-book service, and digital versions of popular magazines
and newspapers Price Value
conscious focused
Blockbuster
After the global movie rental chain, Blockbuster, closed its stores
in Denmark, TDC Group licensed the brand, and relaunched it as an
online OTT-service offering movie rentals to all Danes. At blockbuster.
dk, customers can rent and purchase the newest premiere mov-
ies and series or discover old movie classics in its large catalog of
more than 6 000 titles Leveraging deals with the movie and cinema
industries, Blockbuster offers new movies only weeks after they are
no longer showing in movie theaters Blockbuster is available on all
major OTT platforms, including website, mobile and tablet apps,
and leading Smart TVs and playing consoles TDC Group is working
to leverage the existing customer base and the well-known brand
to capture a significant part of the growing market for online movie
rentals

“Blockbuster has already added 200.000 registered users: we believe

we have something the customers want.”
— Michael Moyell Juul, SEVP, Online Brands.
 The Case 2016 CBS Case Competition 27

Customer
satisfaction
“Our focus on customer experience is not just to be nice. The foundation
for any healthy business is satisfied customers. It brings lower churn,
and more profitability.”
— Pernille Erenbjerg, Group CEO and President.

Focusing on customer satisfaction has been a top priority for TDC

Group for many years, with several improvement programs running
since 2009 The programs have focused on, for example, reducing
unacceptable customer experiences, shortening customer service
waiting time, and ensuring a simple and smooth customer interac-
tion However, the numbers show that TDC Group is still far from
having the happiest customers in the industry While the two online
brands (Telmore and Fullrate) are doing quite well, YouSee (and the
former TDC brand) are lacking behind competitors With the 2016-
2018 strategy, TDC Group has set itself the ambitious objectives of
becoming fully customer-centric and taking customer satisfaction to
a new level. A new position of Chief Customer Officer has been added
to the core management team, to ensure customer satisfaction re-
mains the top priority across TDC Group’s brands

“The need to focus on customer satisfaction has increased over the last
ten years, as the telco market has matured and growth has stagnat-
ed. Historically, a telco could do fine with the growth coming from the
spread of Mobile and Broadband. Today, it’s all about retaining custom-
ers and potentially upsell.”
— Jens Aaløse, SEVP and Chief Customer Officer.

Price and quality are driving recommendation scores

To measure customer satisfaction, TDC Group focuses particularly
on whether a customer would recommend TDC Group to others This
is driven by two elements: price and quality TDC Group has long
focused on not being price leaders, but rather adding more and better
value-added services and entertainment as part of the subscriptions >>
28 TDC Group The Case 2016 The Case 2016 CBS Case Competition 29

Average risk of single user churn, by user’s ARPU, by user’s recommendation score
recommendation score Source: TDC Group
Source: TDC Group
+20%

-50%

Risk of single user churn, in pct

ARPU
<<
”When telco is perceived only as a commodity, which it One way in which TDC Group seeks to improve the
used to be — and to some customers still is — we need public’s perception is to become better at communicat-
to differentiate, in order to compete as premium brand. ing its corporate social responsibility (CSR) initiatives
With our entertainment and TV side, we get products that and societal impact These range from investments in
are much more high-involvement. Our brands are more digital infrastructure and projects promoting sustaina-
suited for this kind of competition.” ble digital culture to social partnerships and specific ini-
— Lise Bering Søby, SVP, Customer Experience Transformation tiatives, such as donation of SIM-cards to newly arrived
refugees 0% 0
The perception of quality is shaped by the overall
1-3 8-10 1-3 8-10
customer experience This includes all touchpoints with “Generally, our image is not nearly good enough – and I
the customer and the usage of products and services am quite sad that it’s not better. Therefore, we need to Recommendation Score Recommendation Score
Examples of drivers include helpful and available cus- make our business model more digital and modern.”
tomer service across all channels (call centers, online, — Pernille Erenbjerg, Group CEO and President. 1: not recommended 10: highly recommended
and retail), fast replies, recognition of customer loyalty,
and flawless connection. Sometimes, good customer Average recommendation score by operator
experiences can come from small initiatives In the Source: TDC Group
summer of 2015, after a two-day breakdown of TV
connections, the responsible manager from TDC Group 100
apologized through a video on Facebook, and released
two free premiere movies
72 72
70

Recommendation Score
“Our aim is simple: we want to have the best customer
satisfaction.” 60
— Jens Aaløse, SEVP and Chief Customer Officer.

Being the incumbent is an extra burden

on perceptions
In addition to price and quality, the role of being the in-
cumbent seems to influence the customer satisfaction.
In Denmark, TDC Group has lower recommendation
scores than Telia (the Swedish incumbent) In Sweden,
where TDC Group is the market challenger, the roles 0
are reversed Also, Telmore’s customers report much TDC Group 3 Telenor Telia
higher satisfaction with their network than TDC Group’s
customers, although the network is the same Operators
The four product
categories
32 TDC Group The Case 2016 The Case 2016 CBS Case Competition 33

Historical development in wholesale prices on TDC’s mobile network

Source: Danish Business Authority

DKK
1,0

0,9
0,84
0,8 0,72
0,7 0,62
0,6 0,54

0,5 0,44

0,4 0,33

0,3 0,23

0,2
0,08
0,1 0,07 0,06 0,05

0,0 Year
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mobile Wholesale price/minute

In Denmark, everyone has a mobile phone, and it is and some operators in Denmark have started offering and data bundled into subscriptions has gone up: for who have leased access to existing operator’s mobile
rarely outside of arm’s reach The number of non-busi- subscriptions with unlimited international roaming less than 100 DKK, a user today can subscribe to price infrastructure In some cases, competition between
ness subscriptions in 2014 was at 5,7 million — a Mobile phones can be bought with or without plans, plans with 12 GB mobile data, 12 hours of voice per the four network owners allowed some MVNOs to
slightly bigger figure than the total population, mean- but are often sold at a moderate discount if the con- month, and unlimited messaging As a result, mobile access existing infrastructure at wholesale prices, that
ing that mobile penetration rate is over 100 percent sumer subscribes to such a plan About two thirds of subscribers have benefited from increasing value in were below the average costs of network operation
Smartphones are becoming standard; approximately mobile phones in TDC Group are sold with a subscrip- their mobile phone packages Intense competition in for the operators With infrastructure wholesale prices
two thirds of all mobile phones are smartphones With tion, and many operators offer installment plans that the mobile sector is also reflected in costly market- set lower than the cost of operating them, the MVNOs
smartphones, phones have gone from being used let customers pay off the phone over up to 36 months. ing campaigns, and the industry is one of the most have been able to afford a disruptive lowering of mar-
for simple voice calling and messaging to becoming However, operators are not allowed to lock in custom- aggressive in buying media space For some brands ket prices, in order to win over customers
the epicenters of all sorts of everyday activities (e g , ers for more than six months. Operators typically do annual marketing spend per subscriber is as high as
music and video streaming, online purchasing, website not make notable margins from selling phones, but ~300 DKK “Our competitors are struggling, which leads to un-
browsing) For TDC Group, Mobile is one of its most offering a competitive selection of phones is impor- healthy market dynamics. The collective behavior in the
important markets — it accounts for a quarter of Dan- tant for customer acquisition In Denmark, iPhones are The unusually competitive nature of the Danish mobile market is simply not sustainable.”
ish consumer revenue, and each of the four consumer particularly popular, and account for more than half of market is driven by two core factors. The first of these — Pernille Erenbjerg, Group CEO and President.
telco brands offer mobile subscriptions. all sold smartphone, implying that market sales are is the number of operators in the market No less than
highly driven by new phone releases from Apple four mobile players in Denmark have their own infra- What drives consumers
A mobile subscription typically provides access to structure, while in Germany and the US, just three Danish mobile consumers are generally price sensitive
calls, messaging (SMS and MMS), mobile data, and “Many users change their operator and subscription operators serve market sizes of 80 million and 300 In combination with easy switching between opera-
potentially a range of value-added services such as when they change phones. Being close to the customer million, respectively tors, pricing has been a prime competitive element In
music streaming, access to video content, and e-book during their phone purchase is essential.” line with the general strategy, TDC Group has not tried
subscriptions Voice calls are most often capped by — Jesper Bæk Overgaard, VP, Business Intelligence Competence Centre. “All the operators are fighting to create volume. They to be market leaders in pricing. One area where TDC
number of hours per month and mobile data usage by have built a network, which is of no need if there are no Group differentiates is in entertainment. YouSee offers
gigabytes, while messaging is typically unlimited For Market dynamics customers on it. Therefore, they are aggressively target- access to the YouSee Entertainment universe, while
most subscriptions, international calls and roaming In Denmark, the Mobile market has seen extremely ing new customers to fill up their excess capacity.” Telmore offers “Telmore Play”. In the fight for custom-
(using the mobile phone outside Denmark) comes at tough price competition over recent years In the — Frederik Sjørslev, SVP, YouSee. ers, there has however been a robust tendency for
an extra cost EU regulators are gradually requiring course of the last decade, prices have fallen by around value-added services to converge into commoditized
operators to phase out roaming rates before 2017, 70 percent Simultaneously, the amount of voice, text, The second factor has been the presence of MVNOs, default elements: previous add-on services such as >>
34 TDC Group The Case 2016 The Case 2016 CBS Case Competition 35

Mobile Consumer Market Cheapest Mobile subscription in the Danish consumer market
Source: TDC Group Source: TDC Group

Revenue (DKKm) 109 DKK/ 99 DKK/Month 89 DKK/Month 79 DKK/Month 89 DKK/Month

Month
3.020
2.788
2.611
30 27 30

24 24
15 18 15

2013 2014 2015 20 20 20

18
17 12 12
16
15 15 8
ARPU & RGU development << 10 6 10
14
unlimited messaging, capped usage rather than pay- 13 7
119 119 115 12 5
as-you-go, and access to 4G are all standard today 6 8 11
Likewise, some elements that are seen as value-adds 5 7
1.900 1.789 1.814
today — e g , music subscriptions or free international 8 6 5
roaming — may be going the same way, which means 15 9 15
6 6 6 3
it is important for TDC Group to continuously explore 1 1 12 12 12 12
10 10 10 10
new ways of providing better customer experiences 3 9
8 7 8
5 5 6 6
and value-added services 5
2013 2014 2015 3

Lately, in the end of 2015 and beginning of 2016,

ARPU RGU ('000) Date
1/2 1/8 1/10 1/1 1/4 1/7 1/10 1/11 1/1 7/2 8/3 15/4 18/5 3/7 5/8 3/9 6/10 5/11 3/12 12/12 6/1
there have been signs of prices rising in the market 2013 2014 2015 2016
All operators in the market, except “3”, have raised
their cheapest package prices for new customers by at
Market share RGU ('000). (change in pp. from 2013-2015) least 10 DKK for the online brands, and 30 DKK for the 18,2
premium brands
16,5 16,5
4.995 Another important competitive parameter is net-
work coverage and speed Customers are using their
phones for ever more purposes, and video consump-
Others 3 Telia
tion in particular is driving up data consumption Each 12,4
3% (1pp) 14% (+4pp) 21%(+0pp)
of the mobile network operators has 4G mobile net-
Telenor TDC Group works, but real-world coverage and speeds do differ by
25% (-2pp) 37% (-4pp)
operator (see next page)

8,3
Nevertheless, there is little monetization over connec-
Approximate 2015 RGU by Brands ('000)* 7,2
tivity differences (e.g., add-on pricing for 4G access). 6,8
6,6 6,4
750 This could be an opportunity for TDC Group After
750 5,6
finishing a network upgrade in 2015, which has been 5,2 5,3
4,4
officially evaluated as the fastest network in Denmark 4,0 4,0 4,0
300 3,7
by The Danish Institute for Technology, it is vital to find 3,3 3,0 3,3
3,0
the best ways of leveraging higher speed and capacity,
both in terms of building more traffic and in terms of
TDC** YouSee Telmore
Fullrate marketing Despite the recent test results, competitors
are still communicating claims about superior net-
*Adjusted figures – for case purpose only works, and it can be difficult for consumers to tell the
GB Hours Price/unit
**To be merged with the YouSee Brand by June 30 2016 difference.
36 TDC Group The Case 2016 The Case 2016 CBS Case Competition 37

TV
Television is at the center part of most living rooms in Denmark More Changing consumption patterns
than 95 percent of all households have at least one TV, and the aver- Today, every screen is a TV Smartphones and tablets
age daily viewing time is more than three hours per person TV keeps are becoming increasingly important for TV viewers,
people updated and entertained, through news, movies, sports, and who want the same viewing experience wherever they
TV shows But the landscape and consumption patterns are changing are Consumers want on-demand TV, with the ability
— consumer preferences, value chains, and technological possibilities to pause or reverse live broadcasts, as well as freely
are all undergoing fundamental change, both challenging the telcos choose between past shows Whereas Flow-TV is
and offering them new opportunities. slightly declining, on-demand TV is on the rise, and
TDC Group estimates that it will constitue half of all
For TDC Group, TV is the core part of the group’s shift from a classic viewing time by 2020 However, for many viewers, the
telco toward an entertainment provider, and brings in more than actuality of Flow-TV (news, sports, and national live Viewing time in pct. of total viewing time YouSee TV package subscribers (’000)
a third of total consumer revenue TV is also where the group size TV shows such as X-Factor) remains important At the Source: TDC Group Source: TDC Group
comes into play as a competitive cost advantage — being able to same time every screen is becoming a TV, every device
reach millions of households brings the ability to negotiate favorable is becoming a TV box With technologies such as smart
costs from broadcasters, who need to show their commercials to the TVs, Airplay, and Chromecast, any video on a smart-
largest possible audience phone, computer, or tablet can be easily projected to
14% 25% 37% 50% 1.166
the big TV screen
1.099
Market offering
TV products are usually purchased as one of two models; a bundle “We used to have very few alternatives to our TV offering.
package or a ”pick and choose” model. YouSee offers bundle packag- Today, due to, among other things, increasing band-
es, and allow users to choose between three packages of TV chan- width, a myriad of alternatives has appeared. Changing
nels: basic, medium and full, each containing more channels than customer preferences challenge our agility, as we need
the prior The “pick and choose” option allows consumers to select to stay relevant for a much more complex set of user
their desired channels on top of a basic package When purchasing preferences.”
TV, consumers are automatically granted access to watch their TV — Christian Phillip Morgan, VP, Content
channels and past TV programs via the YouSee Film & TV apps and
website — the entertainment universe Fullrate, being the no-frills “We’re very eager to find ways to become more relevant 86% 75% 63% 50%
brand, is much simpler in its offering, where only two packages are for the young, digital natives, whether it means changing
available. In general, it’s hard to differentiate on channel packages, as platforms, content, or perhaps payment model.”
every operator essentially offers the same channels. — Christian Phillip Morgan, VP, Content

Customers in the Danish market either buy TV subscriptions individ- For TDC Group, these patterns present a risk that
ually (I-customers) or through organized housing or antenna unions some consumers may opt out of having a TV package
(O-customers) in which the unions negotiate and procure TV on altogether, and may settle with broadband only. On
behalf of the individual households. The O-customers vary in size the other hand, these technologies also open a new
from a dozen households to the largest, which comprise more than possibility to supply TV via broadband to consumers
65 000 households in one organization There are about 2,8 million otherwise not in TDC Group brands 2013 2015 2017 2019e 2013 2015
households in Denmark, of which 1,1 million households are a part of
a TV union
On Demand Flow TV Medium & Premium Packages Basic Packages
>>
38 TDC Group The Case 2016 The Case 2016 CBS Case Competition 39

<<
Shifts in the value chain TV Consumer Market
The traditional TV value chain is changing Historically, broadcasters Source: TDC Group
would purchase and/or produce TV content that they would broadcast
through their TV channels The broadcasters would license their TV
Revenue (DKKm)
channels to TV distributors (e.g., Viasat or YouSee) who would bundle
the TV channels into different TV packages. Finally, the TV distributors 4.240
4.170
would sell the TV packages to consumers and distribute the content
4.078
via their network infrastructure (e g , cable or satellite)

Today, players are moving across the value chain and new OTT
players have emerged (see TV Appendix) Broadcasters and content
producers are skipping TV distributors and delivering their content
directly to the consumer via their own OTT platforms. In Denmark,
the two dominant broadcasters TV2 and DR (Danmarks Radio),
2013 2014 2015
together constituting close to 85 percent of total viewing time, have
made their own OTT services apps. The largest Danish film producer,
Nordisk Film, has done the same. Simultaneously, OTT companies ARPU & RGU development
such as Netflix are not only aggregating movies and series from other
TDC/Fullrate YouSee
producers, and distributing these online, directly to consumers, they
are moving back in the value chain and are producing their own exclu- 323 315 305 234 234 242
sive content as well The combination of free online public service TV
and cheap international OTT services presents a clear risk to TDC. 1.166 1.152 1.099

TDC’s approach has so far been to focus on aggregating content for 218 258 277
customers, with simple and intuitive usage. For YouSee customers, a
live-TV functionality is embedded in the YouSee entertainment uni- 2013 2014 2015 2013 2014 2015
verse that can be accessed either via a TV box (currently 25 percent
of customers have a box, and penetration is expected to double by ARPU RGU ('000)
2018) or the YouSee app.

Market share RGU ('000). (change in pp. from 2013-2015)

“Today, the content and TV landscape has become extremely fragment-
ed and, for many consumers, difficult to navigate. We see a clear role
in aggregating compelling content across multiple broadcasters and
2.575
producers to create one integrated user experience.”
— Christian Phillip Morgan, VP, Content

Others Boxer Stofa

In some countries, TV distributors have taken new roles instead In 21% (+2pp) 11% (-3pp) 14%(-1pp)
2013, British Telecom and SKY, two UK telco incumbents, acquired
TDC Group
exclusive rights to air Premier League, effectively skipping the broad- 54% (-4pp)
casters Such moves are expensive In Denmark, exclusive rights to
air Premier League or the national Danish Superligaen, would likely
amount to 100-300 million DKK annually Approximate 2015 RGU by Brands ('000)*

1.100
“There are definitely opportunities for TDC to go different ways in the
value chain — both upstream, into content ownership and production,
and downstream, with more app-based OTT services, where we continue
to aggregate content from others.”
— Christian Phillip Morgan, VP, Content 250
25

TDC** YouSee Telmore

*Adjusted figures – for case purpose only

**To be merged with the YouSee Brand by June 30 2016
40 TDC Group The Case 2016 The Case 2016 CBS Case Competition 41

”Many of our customers find it hard to understand why Broadband Consumer Market
their connection is not as fast on their wirelessly connect- Source: TDC Group
ed devices as the one they bought. But at the same time,
they don’t exactly think their routers are pretty, and place
Revenue (DKKm)
them in drawers in the basement, which cripples the
signal. We’re finding it hard to communicate how these
2.332 2.391 2.442
things fit together.”
— Jens Raith, VP, YouSee Broadband.

Fragmented markets
In recent years, TDC Group has been pressured by
regional Utilities (power companies) that have estab-
lished fiber-based broadband infrastructure in their 2013 2014 2015

Broadband
local regions The result is a fragmented market, where
nationwide telcos compete with small, regional utility
companies The Utilities’ main selling point is that their
fixed infrastructure technology is fiber-based, and ARPU & RGU development
therefore can deliver speeds that exceed those TDC
185 187 191
Group can offer on its non-fiber infrastructure (see
Today, Internet access is virtually indispensable, and has replaced infrastructure appendix) To stay competitive, TDC
1.042 1.058 1.048
telephone connections as the most important access line for a Group is upgrading its fixed infrastructure, to ensure
household The term Broadband captures any Internet connection that half of the 2,8 million Danish households can
to a household, typically based on one of three fixed infrastructure receive a connection of at least 1 000 Mbps by the end
technologies: DSL, fiber and coax (see the appendix on infrastruc- of 2017. Part of this will be fiber, while another part
ture) However, mobile broadband is becoming increasingly more will be upgraded coaxial cables
important In Denmark, 82 percent of households have a broadband 2013 2014 2015

connection, and the number is steadily growing The penetration is “Fiber is often perceived as the superior ‘technology of
ARPU RGU ('000)
primarily limited by senior households’ lower usage the future.’ With our new coax upgrades, we are actually
able to match or exceed fiber speeds for many custom-
“Broadband has become the household lifeline.” ers, and we need to find a way to explain this to the
— Jens Raith, VP, YouSee Broadband. market.”
Market share RGU ('000). (change in pp. from 2013-2015)
— Jens Raith, VP, YouSee Broadband.
Broadband users are demanding higher speeds in their connections
The annual consumer data traffic expands at a rate of 40-50 percent Further adding to concerns are early signs that the
2.203
per year In particular, the growth of video streaming and on-demand Broadband market may be facing the same kind of
TV is pushing data consumption Today, video streaming accounts for competition that has swept through the mobile mar-
64 percent of all global Internet traffic. While a connection of 100 ket, due to the regulation framework requiring TDC Others Utilities Stofa
megabits per second (Mbps) will be quite sufficient to stream high- Group to sell wholesale access to anyone A no-frills, 13% (+1pp) 13% (+4pp) 13%(+1pp)
definition (HD)-quality movies on several devices at once, more and cheap, Broadband startup, Hiper, was launched in Jan-
Telenor TDC Group
more customers are choosing to go for the highest available speeds uary 2016 by previous founders of broadband compa- 7% (-2pp) 54% (-4pp)
nies. They will presumably offer Broadband using TDC
1000 Mbps is the speed that people dream of –— the speed of the Group’s infrastructure at regulated wholesale prices
future. If more of our customers bought our highest speeds, it would
dramatically change our financial situation.” “We’re expecting tougher price competition in the years Approximate 2015 RGU by Brands ('000)*
— Peter Schleidt, SEVP and Chief Operating Officer. to come.”
— Jens Raith, VP, YouSee Broadband.
450 450
Most broadband consumers use devices that do not have a cable
150
connection, but are connected through Wi-Fi networks instead
Typically, the telco will plug a cable into the household and install a
TDC** YouSee Telmore
wireless router broadcasting a Wi-Fi-signal But the speed of the con- Fullrate
nection decreases as the user moves further away from the router
Being better at ensuring connection throughout homes could prove a *Adjusted figures – for case purpose only
future differentiation point for TDC Group. **To be merged with the YouSee Brand by June 30 2016
42 TDC Group The Case 2016 The Case 2016 CBS Case Competition 43

Fixed Line Consumer Market

Source: TDC Group

Revenue (DKKm)

1.466

Fixed Line
1.243
1.072

2013 2014 2015

A telephone receiver is the classic symbol of connectivity Many will TDC Group’s market position
remember analogue dial-up phones standing on desks and hanging Fixed Line voice was once the sole market for TDC
on walls in their childhood homes But times change and in 2014, Group, and its market share remains strong In late
almost 60 percent of Danish households had no Fixed line voice 2014, TDC Group faced public scrutiny in parts of the
ARPU & RGU development
connection, and more customers cancel their subscriptions every Danish media landscape over Fixed Line price levels,
year In 2014, for instance, the consumer market for Fixed line voice with comparisons being made between the rapid de- 142
133 134
contracted by almost a fifth, and three thirds of the market value has clines seen in mobile pricing compared to more stable
vanished in little more than ten years Subscriptions in the Fixed line pricing levels in the Fixed Line market
voice market are disproportionately represented by senior customers, 844
697
or by services for devices such as alarms “Our customers don’t see Mobile and Fixed Line voice 576
as the same thing. Especially seniors like the comfort of
“We have by now 600.000 subscribers, about 20 percent penetration of their old phones and use them in a different way. Fixed
Danish households. In other words: we are still expecting churn.” line phone calls are, on average, twice the length of
2013 2014 2015
— Pernille Erenbjerg, Group CEO and President. mobile phone calls.”
— Frederik Sjørslev, SVP, YouSee. ARPU RGU ('000)

For TDC Group’s Danish consumer activities, Fixed Line

voice still makes up a meaningful part of revenue and
gross profits, but the overall market decline has pres-
sured its results and forced the company to compen- Market share RGU ('000). (change in pp. from 2013-2015)
3.809 3.865 sate with growth from other product areas
3.701
3.604
3.491
3.348 955
3.098
2.825
Others Telenor TDC Group
2.491 32% (+6pp) 5% (+0pp) 63%(-6pp)

2.060
1.760
1.483
1.350 Approximate 2015 RGU by Brands ('000)*
1.193
1.010
750 750
847

300

TDC** YouSee Telmore

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fullrate

Historical development in TDC’s Fixed Line RGU* (‘000) *Adjusted figures – for case purpose only
Fixed Line RGU ('000)
Source: TDC Group, *including business subscriptions **To be merged with the YouSee Brand by June 30 2016
44 TDC Group The Case 2016 The Case 2016 CBS Case Competition 45

Closing remarks
The telco industry has gone through immense changes during the
last decade, and with the speed of technological advances, there is
no sign that anything is about to settle Connectivity will continue to
spread to new areas, and will invite new players along
As has been obvious during the last few years, this poses some very
substantial challenges for TDC Group, Denmark’s leading telco When
you serve more than fifty percent of a market, it is bound to be felt
when users cancel their legacy products, foreign competitors flood
the market, global tech giants shake up the value chains, and agile
startups slash prices by more than 70 percent The backlash is seen
across all parts of TDC Group, not least its market value: its share
price has fallen by forty percent from August 2015 to February 2016

“We have been through some tough times. And there are still tough
times ahead.”
— Pernille Erenbjerg, Group CEO and President.

However, the changing landscapes and technological possibilities

also open a whole new world of opportunities for TDC Group Within
existing products and beyond, new and better ways of connecting
people to their friends, families, and technology are emerging TDC
Group remains the Danish telco with the best network, the most cus-
tomers, and plenty of other potential customers to win over Keeping
customers, investors, regulators, and employees happy, getting the
revenue and earnings curves straightened out, and putting the com-
pany back on a growth track will be no easy task But it is sure to be
one of the most exciting journeys in Danish business in the coming
years. In the words of CEO, Pernille Erenbjerg:

“Our fundamental value is centered around connectivity. Despite many

challenges, the need for connectivity does not show any sign of decline:
Our customers are spending more and more time in front of various
screens. Where we need to go is where the disruptors of our industry are
born: With the question of what customers really want.”
— Pernille Erenbjerg, Group CEO and President.
 The Case 2016 CBS Case Competition 47

Appendices

Financials
TDC Group

2015 2014 2013 2012 2011

Income Statement DKKm
Revenue 24 366 23 344 23 986 25 472 25 606
Gross profit 17 484 17 092 17 431 18 154 18 811
EBITDA 9.809 9.804 9.979 10.136 10.306
Operating profit (EBIT) (618) 3.808 4.115 4.438 4.347
Profit/loss before income taxes (1 725) 2 793 3 432 4 320 3 817
Profit/loss for the year from continuing operations (2 384) 2 452 3 078 3 691 2 721
Profit/loss for the year (2.384) 3.228 3.119 3.784 2.752

Income Statement, excluding special items

Operating profit (EBIT) 4.498 5.076 5.047 5.176 5.194
Profit before income taxes 3 391 4 060 4 364 4 298 4 664
Profit for the year from continuing operations 2.502 3.529 3.766 3.444 3.389
Profit for the year from continuing operations 2 502 3 551 3 780 3 448 3 442

Retail RGUs in Denmark

Mobile subscriptions (‘000) 2 576 2 566 2 655 2 679 2 729
TV (‘000) 1 386 1 420 1 393 1 392 1 337
Broadband (‘000) 1 329 1 358 1 361 1 327 1 289
Fixed Line (‘000) 847 1 010 1 193 1 350 1 483

Employees
FTEs (end-of-year) # 8 705 8 594 8 587 8 885 9 551
FTES and temps (end-of-year) # 8 854 8 681 8 712 9 097 10 051
48 TDC Group The Case 2016 The Case 2016 CBS Case Competition 49

Coax: Coaxial cables are what is meant DSL (Cobber): DSL (Digital Subscriber Fiber: Fiber-optical cables are the
by the “cable” part of cable TV Coax Lines) or cobber lines have been used newest type of cables, sending traffic
networks were originally laid to supply for telecommunications since the as light signals instead of electrical
households with TV Later, they have industry was born more than a hundred current Fiber has a higher data capacity
been used extensively for data traffic, years ago. The classic fixed lined phone than any other cable technology, but it
since they can carry more traffic than technology ran voice signals through is also more than what is necessary to
DSL Converting the coax signals to the cobber cables Today, due to techno- meet most households’ demands Util-
Internet, however, requires an addition- logical improvements, DSL cables can ity companies, that supply households
al modem Today, only 25 percent of deliver Internet speeds in the range up with electricity, have for years been lay-

Infrastructure YouSee’s coax customers have one, but

toward 2018, this number will double
Coax can deliver Internet speeds in
the range up to 1000 Mbps with TDC
to 40 Mbps ing fiber cables whenever they lay down
power lines anyway This has created
a steadily expanding fiber network on
the hands of utility companies In 2009,

and Technology Group’s new technology TDC Group acquired the entire fiber
network of DONG Energy — the largest
Danish utility company — in northern
Zealand, and have entered an agree-
ment with smaller fiber providers in
other regions Fiber can deliver Internet
speeds up to 1000 Mbps
Most of TDC Group’s infrastructure consists of large collections of fib- With the 2016-2018 strategy, TDC Group has taken The four regions of TDC’s 2018 Fixed Infrastructure Strategy
er cables transporting data between cities and regions, known as the an important step acknowledging the development Source: TDC Group
backbone network, covering the entire country From a business as toward Internet-based traffic: from 2016 and onward,
well as a customer perspective, the most important parts are, howev- there will be built at most one type of cable to any
er, the ends of the network turning toward the customers: either the household, and only the best technology available
last meters of cables going into the households or businesses, or the This means the country is now split into four parts
mobile masts (see figure on next page). In Area 2, TDC Group has a
fiber connection to the home. In Area 1, TDC Group
Mobile infrastructure has no fiber, but will upgrade the broad coax network
The mobile network is distributed from a network of more than 4 000 to allow speeds of 1.000 Mbps, comparable to fiber
mobile masts placed all around Denmark. The capacity for data traffic speeds In Area 3, typically rural areas, TDC Group will
is determined by the technology in the masts and their proximity A offer DSL-based broadband at lower speeds. In Area
wide range of technologies exists, and are normally aggregated into 4, TDC Group will face competition from utilities that
“generations” — 2G (with Edge technology for data traffic: E), 3G and have been rolling out fiber to households — here, Coax Fiber DSL only 3rd Party
4G This is what mobile phones typically show when they’re connect- TDC Group will attempt to lease access to third-party (~64% of households) (~6% of households) (~30% of households) (~30% of households)
ed. In 2015, TDC Group finished a large-scale overhaul of its mobile networks through strategic partnerships
network in cooperation with Huawei, a Chinese telco equipment
manufacturer, bringing 4G to 98 percent of the population Today, “The utility companies lay fiber everytime they dig down
TDC Group’s mobile network is the fastest in the country, with aver- power cables anyway. In addition to that, they seem to Planned speed and coverage upgrades on TDC’s network by 2018
age speeds of 28 Mbps While this is faster than many broadband require lower returns on their investments. Financially, Source: TDC Group
connections, the mobile network does not have capacity to handle all we are simply not able to roll out fiber with the same ag- 100%
the Internet traffic that runs over fixed infrastructure today. gression, not least because we are obliged to give every 90%

Danish households covered

competitor access to it.”
Fixed infrastructure: Broadband, TV, and Fixed Line — Jens Raith, VP, YouSee Broadband. 70%
65%

Percentage of
Cable infrastructure can be split into three technology types: DSL,
coax, and fiber. Each type is sufficient to deliver all telco services, in- 50%

cluding broadband, TV, and voice, since such signals can be converted
into Internet traffic. However, this requires, in some cases, a modem
or a TV box The oldest technology, DSL, serves customers with basic
(low-to-medium) speed, whereas coax and fiber deliver high-speed
0%
broadband. Before the brand merger, YouSee delivered only coax-
based services while TDC Group brand provided DSL- and fiber-based 2015 2018 2015 2018 2015 2018
services Download speeds 10Mbit/s 100Mbit/s 1.000Mbit/s
50 TDC Group The Case 2016 The Case 2016 CBS Case Competition 51

Customer Segments Major household segments

Source: TDC Group

To help make sense of the broad market, TDC Group “We have strong data points on many Danish house- First Stop Career Focused
uses a segmentation framework classifying Danish holds and consumers, and this area is improving as our 6% of population. 1 person per household. Age: <30 years 12% of population. 1 person per household. Age: 20 - 40 years
Income: <200.000 DKK Copenhagen, large suburbs. Income: <400.000 DKK Copenhagen Area.
households into one of eight segments Each brand and entertainment offerings become more and
segment is based on the age of customers in the more integrated. We will definitely work to find practical Born into the digital age make them perceive telco differently than Urban singles who are always up to date with the latest, also technolo-

household, their willingness to pay (price sensitivity) and legal ways to leverage this in new and better other generations They are rather price sensitive and make conscious gy They prefer everything to be online or wirelessly accessible
choices about the need for telco services The mobile phone is their Broadband is a vital equipment for work and experiences, and the
and their family status TDC Group uses this segmen- business models.”
focal point but also broadband is key for this segment TV is usually mobile phone is an indispensable item used for all activities through-
tation framework when developing new products and — Jesper Bæk Overgaard, VP, Business Intelligence Competence Centre.
used as background noise, or not used at all out the day; work, exercise, socializing etc TV is increasingly being
service packages, producing TV and print commer- substituted by streaming
cials, and selecting brand ambassadors Apart from
the segmentation, algorithmic approaches are used
to individually target specific customers, particularly
those who are at a high risk of churning or cancelling
their existing services 30+ Singles Couples
21% of population. 1 person per household. Age: 30 - 59 years 9% of population. 2 persons per household. Age: 35 - 59 years
Income: <400.000 DKK Copenhagen, small suburbs. Income: 400.000+ DKK Small suburbs.

Low income singles spend a lot of time for themselves and consume Connectivity and access to TV is something that is required, but they

Household segments by ARPU, Churn, and relative size large amounts of content and entertainment They are very pleased do not think much of it - it just needs to work Essential to them is
with Flow TV, which serves as a day and evening activity Broadband is the mobile, as it connects them to family and friends The TV is still
Source: TDC Group
essential for their entertainment consumption, but they are sensitive required in their homes, but they are starting to reconsider their
to prices Calls and messaging is the primary use for their phones consumptions, and may migrate to the basic packages

High

First
stop

Families High income families

16% of population. 3+ persons per household. Age: 35 - 59 years 13% of population. 4+ persons per household. Age: 35 - 59years

Area: Percentage of Danish population

Income: 600.000+ DKK Small suburbs. Income: 800.000+ DKK Copenhagen Area, small suburbs.

TV and digital equipment is incorporated in the daily routines Connectivity is freedom and flexibility, and value is when they do
The Mobile also serves as an essential item, because it is used for not have to worry about coverage, speed, content and accessibility
Household Chum (%)

Families
30+ Singles coordinating daycare, school, dinner and work Additionally, it is used Internet and mobile is critical for effective hours, and a tool for more
for entertaining the children and adults on the go Equally important sources of entertainment, knowledge and music They expect to get
Wealthy is Broadband and TV for the routines Recently, the children of the access to what they want, when they want it Streaming and apps are
Seniors family have been streaming and playing more games online diminishing the need for Flow TV

Seniors
Career High income
focused families
Seniors Wealthy Seniors
Couples .
13% of population 1 person per household. Age: 60 + years .
10% of population 2 persons per household. Age: 60 + years
Income: <300.000 DKK Larger suburbs, rural areas. Income: 400.000+ DKK Small suburbs, rural areas.

Telco services are perceived as difficult and complicated, and the The new technology is complicated, but is adopted so that their
engagement is therefore low They are usually assisted by friends children and grandchildren can use it when visiting Keeping up with
and family when choosing and installing products TV plays a majority their network of friends and family is imperative, and the mobile
role in their lives Mobile is starting to become adopted, but the Fixed phone serves that purpose. Yet 2/3 also hold on to their Fixed Line
Line is the primary source for conversations, as it is associated for connection TV allows this segment to keep up to date with the news,
Low
some to be the real phone and for entertainment in the evening
Household ARPU High
52 TDC Group The Case 2016 The Case 2016 CBS Case Competition 53

Customer Mobile
Satisfaction
Customer satisfaction survey results, by operator Average data usage in MB per half year, per SIM card, by operator
Source: TDC Group Source: Telestatistik 2015

Questions TDC YouSee Telia Telenor 3

MB
5.000
Recommendation Score 60 60 72 72 70
4.594
If you were to choose a new operator today, how likely is it you would choose the same? 66 62 71 75 69
How likely is it that you are still a customer at your current operator in 6 months? 76 76 79 85 77
The operator’s marketing is relevant for me (TV-commericals, social media etc ) 47 49 53 53 51 4.000
The operator is good at informing me preemptively of technical changes/disruptions etc 56 67 67 64 59 3.357
The billing is easy to understand 66 66 76 75 74 3.212
The operator explains changes in subscription prices in an understandable manner 61 62 73 70 68
What is your absolute evaluation of the operator’s ability to make it easy for the customer? 64 64 76 74 72 3.000
There is satisfactory possibilities for self-service at the operator 67 67 77 73 75 2.123
2.182 2.228
The operator’s products are simple to use 75 73 81 80 76
The operator give me freedom to compose the solution which works best for me and my family 64 55 76 75 69
2.000
The operator’s entertainment services are relevant for me 44 49 54 35 34 1.564
1.362 1.423 1.316
(movies, tv-series, music, audiobooks, archives, magazines etc.)
The operator is first on the market with new products and services 52 52 56 53 57 1.130
1.008
What is your collective evalutation of: value for money by the operator? 65 60 76 72 69 1.000
The operator’s prices are reasonable 55 53 72 70 65 506 438
The operator’s prices are transparent 55 57 73 70 68
342
229
Contact within the first ½ year (% of yes) 47 48 57 53 58
0 Year
Purchase of a product within the last ½ year (% of yes) 15 15 0 33 33
H1 2012 H1 2013 H1 2014 H1 2015
How do you perceive the selection of mobile subscriptions? 72 80 75 73 71
How do you perceive the quality of mobile coverage? 79 77 81 76 69
How do you perceive your broadband speed? 72 76 75 76 76 3 Telia Telenor TDC
How do you perceive the selection of TV channels? 77 73 76 n/a n/a
How do you perceive the possibility to select the TV channels you want? 66 53 66 n/a n/a
54 TDC Group The Case 2016 The Case 2016 CBS Case Competition 55

TV
Four archetypes of Danish TV viewers Old and new TV Value Chain
Source: Medierapport, Danmarks Radio Source: TDC Group

Cable Lovers Cable Cutters

– 59 percent of Danes – 5 percent of Danes
Cable lovers are typically older than 40 and live in households with a Cable cutters are those who cancel their
TV in every room, with the news channels running during the day and TV subscriptions They are well-versed with Production > Aggregation > Distribution > End User
TV shows at night. They like the classic Flow-TV, and use OTT services digital devices, and are quite comfortable in
less than weekly Cable lovers choose the largest TV packages from having only OTT offerings. They stay updat- Development - Owners Rights > Aggregation - Packaging > Network - Technical Platform > Devices - Applications >
telcos such as YouSee, and are interested in specialized channels, ed on news through social media or online
to follow professional golf or football Cable lovers watch around six news platforms, and watch sports in bars or

Old value chain

Studios and sport Broadcasters TV distributors CPE manufacturers
hours of TV every day, and are often families, often in the more rural with friends who still have TV association
parts of Denmark MTG YouSee Samsung
Warner Bros DR Stofa LG
Nordisk Film Discovery Canal Digital
Premier League TV2 Boxer New distribution

Cable Shavers Cable Nevers

– 34 percent of Danes – 3 percent of Danes
Cable shavers are families between 30 and 39 years, who used to Cable nevers is the young group of “digital
have the large TV packages, but found the recent years’ price hikes natives,” who have never had a TV subscrip-
too high. They like to have their Flow-TV supplemented with OTT tion, and don’t feel any need to They view Studios and sport Distribute via own apps
services such as HBO or Netflix, and value integration between the TV less than twenty minutes of classic TV per associations
PlayStation
and their tablets and smartphones They are more likely than cable day on average, and get their entertainment Nordisk Film
Google TV
lovers to be urban families needs covered by OTTs, or online platforms Smart TV
such as YouTube. YouTube
AppleTV
Broadcasters
Distribute via own apps iOS
Households holding more than one product, TDC Group Viaplay
TV2 Play Android
Source: TDC Group
DR

New value chain

1.650
TV distributors Distribute via own apps
Acquire exclusive rights
BT
1.600 Comcast
YouSee

450
OTT players
Create own content
NETFLIX
HBO
400 SHOWTIME

350

Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15

Households with broadband and/or TV products

Households with min. 3 main products within the same brand

56 TDC Group The Case 2016 The Case 2016 CBS Case Competition 57

Survey of Danish OTT users and their subsequent TV behavior (2015) Case Writers
Source: TDC Group Kristoffer Forné Strøberg
Oskar Harmsen

Thanks to
TDC Group
8% Of these (OTT-users), changes 58%
in TV subscription Pernille Erenbjerg, Group CEO and President
Michael Moyell Juul, SEVP, Online Brands
29%
Jens Aaløse, SEVP and Chief Customer Officer

Percent of respondents
René Brøchner, SEVP, YouSee
Peter Schleidt, SEVP and Chief Operating Officer
Jens Raith, VP, YouSee Broadband
27% Christian Phillip Morgan, VP, Content

10% Frederik Sjørslev, SVP, YouSee

53%
Simon Højmose, SVP, Corporate Financial Services
Morten Boe Andersen, Senior Director, YouSee Strategy & Business Development
9%
6% Jesper Bæk Overgaard, VP, Business Intelligence Competence Centre
Lise Bering Søby, SVP, Customer Experience Transformation
0%
...reducing ... canceling ...increasing No change The case could not have been completed without,
TV pack TV pack TV pack
Laura Marie Larsen, Senior Director, YouSee & Online Brands HR
Stine Kamp Bendixen, Senior Strategy Consultant, Online Brands Strategy & Business Development
Julie Aakvist Steengaard, Associate Consultant, Group Strategy
Have an OTT subscription Is planning to buy Is not planning to buy Don’t know Camilla Glad, Creative Media Planner, Talent Acquisition
Mathias Lysholm Faaborg, Senior Director, Online Brands Strategy & Business Development
and many more

Graphic design
Rikke Wehner Hein, Art director
Martin Okholm, Art director
TV Competitive landscape Thomas Grønholdt, Media graphic designer
Source: TDC Group
Advisor
Cable IPTV DTT DTH Mads Wadstrøm Christensen, The Boston Consulting Group
(Coax) (xDSL & Fiber) (antenna) (satallite)
Case testers
DK distributors
Katharine Bendt
Broadcasters YouSee Stofa Waoo! TDC Boxer Viasat Canal Digital Katja Eberhardt
Theis Malmborg

DR Finn Jannik Schmidt

Mads Schou-Andreasen

TV2
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60 TDC Group The Case 2016