Ernst & Young Reveals New Insight Into How IP Technology Will Revolutionize Customer Interfaces in The Connected Society

Ernst & Young's IP Research and Landmark Connected Society Study Provide Key Communication Perspectives at Telecom '99 Conference in Geneva Ernst & Young announced today at Telecom '99 a new report on the impact of IP network technology on customer relationship management in the next century. As a follow-on report to Ernst & Young's recently completed landmark global communications study entitled The Connected Society, the new paper reveals that IP- based systems will fundamentally alter the business model for communications providers. The new systems will change all the pre-existing rules about customer relationship management, highlighting the need to adopt a new and flexible approach to the customer, including reengineering customer interfaces and all the processes which support them in a new era of communications competition. Entitled Survival in The Connected Society, Why IP Spells Total Transformation For Telcos, the paper documents the total business transformation necessary for communications companies as they embrace the open systems movement and prepare for a complete overhaul of infrastructure systems to capture or retain the higher value customer in the Connected Society. "IP turns service providers' models 'outside in,'" said John Edwards, with Ernst & Young's Asia Pacific communications practice. "The combination of the open IP architecture with free- market economics puts the customer in complete control and forces communications providers to fulfill customer needs in new value- added ways. The IP business transformation affects the strategic business model, the core profit center, the corporate culture, and the tactical OSS of the communications provider all at the same time." While the first impact of IP networks will be to dramatically reduce pricing models, the most important long term effect will be a new strategic business model to handle the customer within an open systems environment. Incumbent carriers will need to adapt to different pricing schemes, form extensive new partner alliances, and transform underlying OSS to accommodate the new IP open architecture world. "Today a company's OSS and their business model are interdependent. They must be co-developed and co-designed to succeed," said Jeff Perelman, with Ernst & Young's Strategic Advisory Services. "Moreover, even if you have a successful strategy, the business model and OSS will remain the critical success factors." Supporting research referenced in the paper also demonstrates the expected rapid growth of IP-based basic services such as voice and fax reaching $30 billion in revenue opportunities over the next five years. In addition, data from the report suggests that voice communications, which today still provide some 70-80% of the traditional carriers' revenues, could essentially be a free service in the coming five years on the back of exploding data volumes. And some observers expect the total volume of IP- based traffic to surpass that of the circuit-switched PSTN as soon as 2004. "To remain a leader in the new open IP environment and to satisfy customer demands, carriers will need to invest substantially more on the systems layer than they currently invest on the IP network layer," said Hugh Jagger, with Ernst & Young's European communications practice. "Virtually every customer-facing system and supporting process will have to be reengineered for maximum flexibility and effectiveness in satisfying the Connected Society customer." In order to prepare communications companies for these dramatic changes ahead, Survival in The Connected Society provides recommendations to companies facing the challenges of the new IP world and related considerations in attaining and keeping customers in the Connected Society. According to the paper, incumbents must: - account for rapid depreciation of packet-based network infrastructure (less than 36 months vs. 7-to-20 years) - accommodate a shift in intelligence to the edge of the network as opposed to intelligence in transport or signaling systems - bridge current applications (and their associated revenue) from multiple service-specific networks to a converged IP network - resist short-term pressure to rely on their massive sunk investment - re-educate a workforce that has spent decades optimizing the technology that IP is replacing - shift IT spend from maintaining legacy systems to transforming business processes and OSSs to handle the customer- centric open IP environment The IP paper was developed on the heels of the breakthrough Connected Society study recently completed by Ernst & Young that documents a profound restructuring of the communications industry, focused on addressing customer needs more rapidly and effectively in an era of new communications services and increased competition. This unprecedented study, involving discussions with over 100 CEOs and executive leaders at 96 of the world's top communications service providers and equipment vendors, provides content and perspectives for discussions at the Telecom '99 Forum in Geneva, including two major industry panels at Telecom '99 involving CEOs and other industry leaders: - The Connected Society Roundtable:

Sunday, October 10, 1999, 2:30 p.m. - 5:30 p.m. at Arena - The Information Age Company:

Monday, October 11, 1999, 9:00 a.m. - 1:00 p.m. at Palexpo About Ernst & Young Ernst & Young provides assurance and advisory business services, tax services and consulting services for global clients. Ernst & Young International is a global organization whose member firms have 85,000 people in 132 countries worldwide. Worldwide revenue of the organization in fiscal year 1998, ending September 30, 1998, was $10.9 billion. Ernst & Young consults telecommunications clients around the world, with services including strategic planning, system and process development, outsourcing, audit, and tax. Visit the Ernst & Young web sites at ots Original Text Service: Ernst & Young Internet: Contact: Barbara McFarren of Ernst & Young, (in the USA) 408-947-4969; or Derek Kober of Neale-May & Partners, (in the USA) 650-328-5555, ext. 126

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