TDS Metrocom - Baker Strategy Group

TDS Metrocom
A look at the local telecom market
Discussion
MAKE IT HAPPEN
Livonia, MI
November 30, 2001
BAKER
STRATEGY GROUP
TDS Metrocom
Discussion
A look at the local telecom market
Chapter
Section
I. TDS Overview:
Page
Page
2
3A general look at TDS, TDS Telecom, and TDS Metrocom
II. Ann Arbor Market:
12
A rough assessment of the market for voice services
III. TDS Metrocom Opportunities
19
How TDS Metrocom can increase its customer base
BAKER
STRATEGY GROUP
November 30, 2001
Page 1
TDS Metrocom
Discussion
A look at the local telecom market
I. TDS Overview
A general look at TDS, TDS Telecom, and TDS Metrocom
BAKER
STRATEGY GROUP
November 30, 2001
Page 2
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
TDS Overview
Telephone and Data Systems, Inc. (TDS) is a public, Chicago-based telecommunications
company serving 37 states across the US
Key Information
Headquarters
Main Holdings
Date Formed
Chicago, IL
U.S. Cellular
TDS Telecom
1969
# of customers
# of employees
3.8 million
8,900
37-state Service Area
Total Access Lines
845,800
DSL
6,900
Internet service accts 124,800
2000 Numbers
Revenue
Total Assets
Basic EPS
ROE
$2,326 million
$8,634 million
$2.42
4.5%
Source: TDS 2000 Annual Report, TDS website
November 30, 2001
TDS Leadership
President and CEO
Chairman
LeRoy T. (“Ted”)
Carlson, Jr.
LeRoy T.
Carlson,
BAKER
STRATEGY GROUP
Page 3
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
Major TDS Operating Assets
TDS is a holding company for a number of ILECs, CLECs, and other communications
companies
Operating Assets
TDS Ownership
U.S. Cellular
82.4% ownership
TDS Telecom
100.0 % ownership
Aerial Communications/
VoiceStream Wireless
Corporation
35,570,000 common shares
(soon to be Deutsche Telecom)
Vodafone Air Touch
12,946,000 shares
(through subsidiaries)
Rural Cellular Corporation
Minority Owner
Illuminent Holdings, Inc.
Minority Owner
Source: TDS 2000 Annual Report
November 30, 2001
BAKER
STRATEGY GROUP
Page 4
TDS Metrocom
Discussion
I. TDS Overview
Key Developments in 2000
A look at the local telecom market
2000 was a strong year of growth and development for both U.S. Cellular and TDS Telecom
U.S. Cellular
TDS Telecom
• 483,000 new customer, up 20% from 404,000 in
1999
• ILEC revenue grew 7% and operating cash flow
grew 4%
• Over 3 million customers, 50% of whom are on
digital rate plans
• TDS Metrocom revenue grew 121%, while
USLink revenues grew 20%
• Divested Hawaii property and acquired North
Florida/ Georgia properties
• TDS Metrocom entered Southwest Wisconsin
and northern Illinois
• Jack Rooney joined as CEO in April
• Chorus Communications Group acquisition was
announced, adding 45,000 access lines
• Jay Ellison joined as Executive Vice-President –
Operations in September
• TDS began offering “True Talk”
• Span America service plan rolled out
• Dynamic Organization approach was adopted
"TDS posted solid operating results across the company for the quarter, even in a slowing economy. “
LeRoy T. Carlson, Jr. President and Chief Executive Officer
Source: TDS 2000 Annual Report
November 30, 2001
BAKER
STRATEGY GROUP
Page 5
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
Operating Financials
TDS Telecom has grown operating revenue and income steadily over the last ten years
$ million
12.1%
12.2%
600
12.8%
400
12.1%
11.4%
10.8%
8.8%
12.2%
12.3%
12.6%
200
Revenue
Income
11.1%
12.4%
12.9%
4.0%
7.3%
8.1%
13.1%
14.3%
14.3%
14.4%
14.7%
14.1%
13.9%
0
Expenses
-200
9.9%
9.4%
8.6%
-400
6.9%
5.2%
6.9%
7.4%
1990
Revenue
Expenses
Income
$ million
194
131
63
Source: TDS 2000 Annual Report
November 30, 2001
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
211
146
65
238
166
72
268
189
79
306
215
92
355
257
98
395
292
103
438
337
100
488
394
94
546
431
115
610
482
128
BAKER
STRATEGY GROUP
Page 6
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
Access Line Equivalents
TDS Telecom has grown its total access lines at a cumulative average growth rate of 7.4%
to 9.8% each year over the past 10 years
800
CAGR
CAGR
700
CAGR
CAGR
600
CAGR
CAGR
500
CAGR
CAGR
400
CAGR
CAGR
9.0% 7.4%
300
8.5%
8.9%
8.8%
9.7%
9.2%
9.6%
9.8%
9.6%
Access Lines
Equivalents
Type
DSOs
Trunk Line
ISDN BRI
ISDN PRI
T1
200
1
2
23
24
100
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
CLEC
0
0
0
0
0
0
0
2
34
66
112
ILEC
279
304
322
356
393
426
485
516
548
572
601
Source: TDS 2000 Annual Report
November 30, 2001
BAKER
STRATEGY GROUP
Page 7
TDS Metrocom
Discussion
I. TDS Overview
Current TDS Strategy
A look at the local telecom market
Two of the three points in James Barr III’s strategy have implications for TDS Metrocom:
enter new markets and offer more data products
1
Grow and strengthen the core ILEC
business
2
Leverage strengths into attractive new
CLC markets
• North and SW Michigan
• East Detroit, MI
• Ohio
3
Create a robust line of data products
and services to sell to our new and
existing markets.
• DSL
• Point-to-Point Data Service
• Virtual Private Networks
Examples for
TDS Metrocom
Our strategy is simple: to respond to customer needs by providing products and services
that help our customers lead more productive and fulfilling lives.
James Barr III
Source: TDS 2000 Annual Report
November 30, 2001
BAKER
STRATEGY GROUP
Page 8
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
Products and Services
TDS Metrocom offers a variety of products and services for both business and residential
customers
General Calling Service Options
• Caller ID
• Call Waiting
• Three-Way
Conference Calling
• Automatic Callback
• Automatic Redial
• Call Forward Variable
• Remote Access Call
Forward
• Call Forward Busy
• Call Forward NoAnswer
• Speed Calling
• Call Screening
• Call Trace
• Fast Access to the
Internet
Business Products
• Business Lines
• Centrex Services
• 800 Service
• Calling Cards
• Voice Messaging
TDS Metrocom Service Area
• Fax Services
• DSL
• Internet Dial Up
• Data (T1)
• ISDN – BRI and PRI
Source: TDS 2000 Annual Report, TDS Metrocom marketing materials
November 30, 2001
Residential Products
• Local Phone Services
• Local Voice Packages
• Additional Phone Lines
• Calling Cards
• Voice Messaging
• Various Calling Features
• DSL
• Internet Dial Up
BAKER
STRATEGY GROUP
Page 9
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
Line Growth
Over the last 12 months, TDS Metrocom has grown access line equivalents and DSL lines
by CAGR 34.9% and 22.4%, respectively
Access Line Equivalents
CAGR 34.9%
140,000
118,200
120,000
93,900
100,000
77,400
80,000
60,000
52,600
63,200
DSL Lines
5,300
5,000
4,200
4,000
3,100
3,000
40,000
2,000
20,000
1,000
0
CAGR 22.4%
6,000
2,300
1,600
0
Q3 ‘00Q4 ‘00Q1 ‘01Q2 ‘01Q3 ‘01
Source: TDS website
November 30, 2001
Q3 ‘00Q4 ‘00Q1 ‘01Q2 ‘01Q3 ‘01
BAKER
STRATEGY GROUP
Page 10
TDS Metrocom
Discussion
I. TDS Overview
A look at the local telecom market
Financials Ending September 30
By Q3 2001, expense growth outstripped revenue growth from Q3 2000, but the losses are
part of the business plan for TDS Metrocom
All amounts in thousands of US Dollars
2001
2000
Revenue
47,086
28,424
18,662
65.7%
Expenses before Depreciation
66,667
32,329
34,338
106.2%
(19,581)
(3,905)
(15,076)
(9,221)
4,931
4,290
(28,802)
(8,836)
(19,966)
Operating cash flow
Depreciation
Operating Loss
Source: TDS website
November 30, 2001
Difference
%
N/M
87.0%
N/M
BAKER
STRATEGY GROUP
Page 11
TDS Metrocom
Discussion
A look at the local telecom market
II. Ann Arbor Market
A rough assessment of the market for voice services
BAKER
STRATEGY GROUP
November 30, 2001
Page 12
TDS Metrocom
Discussion
II. Ann Arbor Market
Ann Arbor Demographics in 1990
A look at the local telecom market
In Ann Arbor’s residential market, areas with high household density levels also have low
median household income levels
Key Figures
1990
Median Household Income
2000
Population
109,608
114,024
Households
41,660
45,693
Housing Units 44,010
47,218
Household
Size
2.33
2.22
<$20,222
$20,222 - $31,550
$31,551 - $37,752
$37,753 - $45,961
>$45,962
Source: SEMGOG
November 30, 2001
Household Density per Square Mile
< 385
385 – 1,122
1,123 – 1,950
1,951 – 2,845
> 2,845
BAKER
STRATEGY GROUP
Page 13
TDS Metrocom
Discussion
II. Ann Arbor Market
A look at the local telecom market
Ann Arbor Market
In the business market, small businesses in Michigan outnumber other businesses and
employ 51.6% of the non-farm employees
Number of businesses in MI, 1999
Non-farm employees in MI, 1999
 = 219,552
 = 3,919,567
Other
28,847
Other
1,897,856
13.1%
48.4%
86.9%
Small Businesses
(<500 employees)
190,705
Source: David Baker
November 30, 2001
51.6%
Small Businesses
(<500 employees)
2,021,711
BAKER
STRATEGY GROUP
Page 14
TDS Metrocom
Discussion
II. Ann Arbor Market
A look at the local telecom market
Ann Arbor Employee Estimates in 2000
Based on 2000 census figures, Ann Arbor had 134,631 non-farm employees, 3.4% of
Michigan’s total of 3,919,567
Ann Arbor employees by industry, 2000
 = 134,310
Public Admin
Wholesale
Manufacturing
TCU
Agr and Nat Res
Ann Arbor non-farm employees, 2000
Total employees
Less Agr and Nat Res
Total non-farm employees
Total MI non-farm employees
Less A2 non-farm employees
Rest of MI non-farm employees
FIRE
134,310
-679
133,631
3,919,567
133,631
3,785,936
 = 3,919,567
Retail Trade
Ann Arbor
3.4%
Services
Rest of MI
96.6%
Source: David Baker
November 30, 2001
BAKER
STRATEGY GROUP
Page 15
TDS Metrocom
Discussion
II. Ann Arbor Market
A look at the local telecom market
Ann Arbor Employee and Business Estimates
Based on the 3.4% ratio, we can estimate that 68,927 employees are employed by 6,502
small businesses in Ann Arbor
Number of businesses in Ann Arbor
Non-farm employees in Ann Arbor
 = 133,631
 = 7,485
Other
983
Other
64,704
13.1%
48.4%
86.9%
Small Businesses
(<500 employees)
6,502
Source: David Baker
November 30, 2001
51.6%
Small Businesses
(<500 employees)
68,927
BAKER
STRATEGY GROUP
Page 16
TDS Metrocom
Discussion
II. Ann Arbor Market
A look at the local telecom market
Revenue Estimates for Ann Arbor Voice Services
Based on the above information, we can estimate the Ann Arbor market for voice services
and forecast a rough revenue estimate
Line Item
1
# of units
2
# of phones per unit
3
Total market access lines
4
TDS A2 market penetration
5
Total TDS access lines
6
Avg. monthly rev. per line
7
Est. monthly revenue
8
Est. Annual revenue
Source: David Baker, TDS Annual report
November 30, 2001
Residential
Small
Large
Business Businesses
45,500
6,500
1,000
1
2
20
45,500
13,000
20,000
5%
5%
Total
53,000
Notes
households or businesses
Very rough estimates
78,500
5%
Line 1 times Line 2
Rough estimate
2,275
650
1,000
3,925
$75
$75
$75
$170,625
$48,750
$75,000
$294,375
$2,047,500
$585,000
$900,000
$3,532,500
Based on penetration
Based on ILEC avg. in
2000 annual report
includes services and options
revenue from voice services
BAKER
STRATEGY GROUP
Page 17
TDS Metrocom
Discussion
II. Ann Arbor Market
A look at the local telecom market
TDS Competitors
TDS Metrocom faces a variety of competitors in the Ann Arbor market for residential and
business voice services
Headquarters
Certificate
Clinton, MS
Hamtramck, MI
Tampa, FL
Bedminster, NJ
2000 Revenue
$51,476 million
$16,335 million
NA
$178 million
$209 million
Employees
215,088
27,100
NA
1,947
1,266
Leadership
Edward E. Whitacre
Chairman and CEO
Bernard J. Ebbers
President and CEO
Patrick O’Leary
CEO
D. Gregory Smith
Chairman, President,
and CEO
William F. Lenahan
CEO and Director
Target
customers for
local service
Res. and bus.
Res. and bus.
Business
Res. and bus.
Business
Virtually all markets
Virtually all markets
Small and medium
sized business in the
Midwest region
Tier III markets,
population areas
between 100k and
700k
Tier III markets,
population areas between
100k and 700k
Strengths
• Incumbent LEC
• Financial resources
• Brand name
• Tech. resources
• $10M funding in June
• Back office systems
Local Phone
Lines in MI
3.5 million
(in Michigan)
Source: company websites, Hoovers Online
November 30, 2001
NA
30,000
(in Michigan)
• Z-Line res. product
• Online services
380,000
(In 17 states)
• Solid bus. Niche
• ISP and ASP cust.
3.6 million
(mid-Atlantic & Midwest)
BAKER
STRATEGY GROUP
Page 18
TDS Metrocom
Discussion
A look at the local telecom market
III. TDS Metrocom Opportunities
How TDS Metrocom can increase its customer base
BAKER
STRATEGY GROUP
November 30, 2001
Page 19
TDS Metrocom
Discussion
III. TDS Metrocom Opportunities
A look at the local telecom market
Market Opportunities
By focusing on new customers, offerings, and approaches, TDS Metrocom can grow its
business and develop new opportunities
General Ideas
Potential Ideas
Profitable Ideas
Source: Baker Strategy Group
November 30, 2001
New
Customers
•
•
•
•
Customer profiles
General strategies
Target customers
Initial sales
appointment
New
Offerings
• New data products
• New services
• New pricing
New
Approaches
•
•
•
•
•
Viral marketing
Local packages
New ad channels
Fundraisers
Affinity Groups
New Opportunities
BAKER
STRATEGY GROUP
Page 20
TDS Metrocom
Discussion
III. TDS Metrocom Opportunities
A look at the local telecom market
Customer Acquisition
TDS Metrocom can grow its customer penetration in its existing markets, such as Ann
Arbor, by applying a strong presales process
1
2
Create segment customer profiles
• Developing customer profiles for each market
segment allows you to more accurately
assess the sales potential of each potential
target customer
Identify general strategies for each profile
• Each market segment will respond to a
different value proposition offered by TDS
Metrocom, based on existing needs and the
competitive landscape
Potential New Customers
3
• Generating a list of target customers in the
Ann Arbor that match the general customer
profile is the beginning of a systematic sales
process
• With competitive information and a value
proposition, you can gather the proper contact
information for a company and set up an initial
sales appointment, beginning the sales process
Target customers in Ann Arbor market
Gather info and contact companies
Source: Baker Strategy Group
November 30, 2001
4
BAKER
STRATEGY GROUP
Page 21
TDS Metrocom
Discussion
III. TDS Metrocom Opportunities
A look at the local telecom market
Potential New Offerings
Designing new offerings in new data products, services, and pricing structures can enable
TDS Metrocom to acquire new customers
Examples
• DSL
• ISDN
• VPN
• Internet Connectivity
New
Data Products
Examples
• Online bill review
• SLAs
• Web Hosting
• AVR Avoidance
Source: Baker Strategy Group
November 30, 2001
New Services
Potential
New
Markets
New
Pricing
Examples
• Product bundles
• Rebate discrimination
• Loyalty bonds
• Minutes packages
BAKER
STRATEGY GROUP
Page 22
TDS Metrocom
Discussion
III. TDS Metrocom Opportunities
A look at the local telecom market
Possible New Approaches
Crafting new approaches to marketing its offerings can enable TDS Metrocom to adopt a
unique sales approach and reduce competition
New Approaches
Description
Examples
Viral Marketing
A form of network marketing where promotions
are relayed by providing incentives for referrals
• Discounts for referring friends
• Website hyperlink referrals
Local packages
Packages of service offerings that are tailored for
local market and given names especially fitting for
the target market area
• “Big House” T1 provisioning
• “Eagle” data access plan
Identify effective medium to reach target segments
of companies and individuals
• Sports events, local restaurants, radio
• Community events, charitable causes
A program where companies or individuals sign up
for service and a percentage of the charges are
donated to a designated charity
• Lifeline Communications
• Sprint promotions
Organize marketing efforts around existing affinity
groups in place
• Churches, schools, sports clubs,
• Professional associations, hobby groups
New Ad Channels
Fundraisers
Affinity Groups
Source: Baker Strategy Group
November 30, 2001
BAKER
STRATEGY GROUP
Page 23
Helping Organizations Excel through Effective Customer Strategy
MAKE IT HAPPEN
Baker Strategy Group | 2232 S. Main St. #173 | Ann Arbor MI 48103 | +1 888 BAKER-13 | [email protected]| www.bakerstrategy.com