Sourcing in Telenor Group

Bjrn Harald Brodersen, Head of Group sourcing

Vendor cost is a significant part of Telenors cost base

2010 opex + capex base (NOK 50 bn)

2010 vendor cost breakdown (NOKbn)

~12
Other IT

~13

Network

Vendor related

Other*

Vendor capex

Vendor opex

* Salaries and personnel cost, buildings and land, commissions, licences and fees, etc.

From traditional procurement to strategic sourcing

Traditional procurement process

Purchase request Issue RFQ and negotiate Purchase order

Tactical Transaction focused Reactive On/off

End-to-end sourcing process

Opportunity assessment Supply market analysis Develop sourcing strategy Procurement process Vendor management

Strategic Fact based and analytical approach Proactive Continuous process

Sourcing development in Telenor Group

-Global sourcing
organisation

-Active identification
of group-wide synergies -Extensive number of global sourcing projects -Group portfolio approach

-Local procurement -Limited focus on Group scale -Best practice sharing

Past

Present

Future

Main focus areas of Telenor Group sourcing

Leverage on Group scale

Execute transformation/ modernisation RFQs

Ensure proper sourcing governance and competence

Leverage on Group scale: Identifying the opportunities

USB modem example:
Estimated modem volume 2008-2010

Strong growth in demand Global vendor market

Units Spend

Price
2008 2009 2010
Business unit 1

Wide price gaps among business units Significant volume effects

Business unit 2

Volume

Unit prices are dropping dramatically through bundling of volumes

USB modems

SIM cards

Microwave

60%

55%

50%

Avg. price before

After GFA*

Avg. price before

After GFA*

Avg. price before

After GFA*

*) GFA = Global Frame Agreements

Standardising product specifications is a key driver for gaining scale

Reduction in number of specifications
-65%

Batteries

Typical distribution curve

Before

After -64%

Antennas

Target distribution curve

Rectifiers

Before

After -48%

Before

After

Consolidating the vendor base helps to intensify the competition

SIM card example: 2009
2011

80 million units >40 local agreements with 12 different vendors Price variations of up to 400%

120 million units 4 global vendors/agreements Same (low) price for all business units

Expanding the use of software licence pools

Software licence prices (index)

100

Additional benefits

Improves asset utilisation

across the Group
66

Removes reseller margins

33

Local licence agreements

Global licence agreement w/o financial commitments

Global licence agreement with financial commitments

Main focus areas of Telenor Group sourcing

Leverage on Group scale

Execute transformation/ modernisation RFQs

Ensure proper sourcing governance and competence

Network modernisation RFQs

Strong data growth will drive network investments

Opportunity assessment

Supply market analysis

Develop sourcing strategy

Procurement process

Vendor management

Heavy increase in data traffic in coming years

Data growth represents a challenge to traditional mobile voice networks

Traffic volume Network cost (old prices and existing technologies)

Traffic volume per user (GByte) pr month, Telenor Norway

Total mobile data traffic (PByte), Telenor Norway

60
2010 2015 3.0

50 40 30
1.0 1.2

20 10 0

Network cost (new prices and technology improvements)

Time 2009 2011 2013 2015

0.25
Touchphone Large screen

PetaByte = 1,000,000 GigaByte

Existing platform not adaptable to expected traffic growth and not prepared for LTE

From Telenors CMD 2010

Network modernisation RFQs

Vendor market dynamics will intensify competition

Opportunity assessment

Supply market analysis

Develop sourcing strategy

Procurement process

Vendor management

Anticipated market development 2008->

New vendors maturing Cost efficient production in Asia High R&D spending Credible technology roadmaps

Perceived value HIGH

Downstream vertical integration

Heavy R&D

LOW HIGH LOW

Cost-efficient follower

Cost

Network modernisation RFQs

Target is to secure future proof technology at lower TCO for all business units
Opportunity assessment Supply market analysis Develop sourcing strategy Procurement process Vendor management

1 Create credible threat

5 Establish global swat team to execute RFQs

2 Standardise technical specifications

4 Balance vendor portfolio across the Group to diversify risk

*) TCO: Total cost of ownership over the life time of the contract

3 Aim for single vendor RAN networks

Network modernisation RFQs

A standardised procurement process executed to secure improved terms and conditions

Opportunity assessment Supply Market Analysis Develop sourcing strategy Procurement process Vendor management

Expert swat team on Group level

Standardised terms and conditions

Standardised and transparent RFQ process

Standardised price models

Standardised technical requirements

Standardised decision criteria

Network modernisation RFQs

Continuous follow-up of the vendors is required

Supply market analysis Develop sourcing strategy

Opportunity assessment

Procurement process

Vendor management

Performance management

Vendor development process Preferred vendors

Development track

Global vendor pool

Network modernisation RFQs

Network RFQs in all business units by end of 2011

2009 2010 2011
Completed Ongoing

Uninor (circles 1-5) Uninor (circles 6-8) Telenor Montenegro Uninor (circles 9 13) Telenor Norway Telenor Sweden Telenor Denmark Telenor Serbia Telenor Hungary Grameenphone DTAC DiGi Telenor Pakistan

Network modernisation RFQs

Significant financial and technological benefits

Estimated TCO savings of more than NOK 12 bn over life time of contracts
Average TCO reduction* Balanced vendor portfolio**

~15% ~40% ~25%

-65-70%
~25% ~60% ~35%

Existing contract

New contract

2008

2011

* ) TCO: Total cost of ownership over the contract period. TCO for RFQ scope vs existing contract prices **) Based on number of sites

A similar, structured approach is now starting within managed services and IT sourcing
Drivers

Network and IT services

What is core business and what should be

sourced through the vendor market

Network op. and maintenance? Application development and

maintenance?

Deploy Operate Maintain Develop ~NOK 2.5 billion annual cost*

Application and basic operations? Vendor market is developing and service

offering is more mature

Vendor agnostic operations Network and IT domains converging

*) Estimated external cost related to network and IT infrastructure services

Sourcing in Telenor Group: Still a large untapped potential

One volume

One Negotiation

One Interface

Sourcing in Telenor Group

Bjrn Harald Brodersen, Head of Group sourcing