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June 30, 2006

Broadband Connectivity - HYPOTHESIS

As per the Voice & Messaging 2.0 ‘hypothesis’, here’s our ingoing suggestion for ‘Broadband Connectivity - new ways of funding and pricing networks’

1.) Situation

• Huge growth in all markets, but low margins.
• Where unbundling (wholesale DSL or raw copper) exists, there are many competitors.
• Emergence of “free” broadband in some markets as adjunct to fixed or mobile calling plans.
• Significant inter-modal competition, mostly coax vs. twisted pair; limited wireless penetration.
• A few telcos “going for broke” with fibre deployments (e.g. Verizon, HKBN, KPN?, DT?, BT??).
• Emergence of municipal network movement (US, northern Europe, Taiwan).
• Bulk of traffic is generally peer-to-peer (P2P) file sharing. Paying for explicit QoS is rare; “best effort” is the de facto norm.

2.) Complication

• Attempts at price discrimination of network traffic meet regulatory/political or technology barriers (“network neutrality”, IMS beyond IP-based PSTN replacement).
• Users are competing against bundled telco video and voice offerings using peer-to-peer file sharing and VoIP; ultimately you can’t compete against your own customers.
• Paradox of best (heaviest usage) customers being kicked off because of inadequacies of QoS, pricing, metering, ownership, technical and billing models. No other market works like this!
• Many fibre assets are underused; and penetration remains unimpressive as many users fail to see value, often despite being avid “old media” consumers.
• Duplicative competing access infrastructure harms business case (based on premises passed/take-up rate).
• Cost of sales, marketing, billing to individuals and households is high.

3.) Question (in the mind of the operators today)

1. Are we packaging, positioning and selling the product in the right way?
2. Are we creating the right technology models and pricing incentives for different classes of user and traffic?
3. Is the traditional funding and sales model (“fiscal architecture”) the right one for the future?
4. Is the triple/quadplay bundling going to deliver good returns generally, or are places like Hong Kong anomalies?

4.) Answer (our suggestion as to the solution)

1. Focus on the non-functional aspects of the service. Consider alternative models where service purchase funds necessary connectivity. Bundle more horizontal connectivity together, rather than vertical service integration.
2. Investigate tiered access and pricing models that don’t rely on the application filling in a “customs declaration” as to the nature of the traffic. Support P2P explicitly and tailor your product for it.
3. If you can’t beat them, join them. Shape the regulatory and commercial environment so that the municipal/co-operative/public access LAN movements become part of your business model.
4. Quadplay will have limited success as a profit engine, but the offer is likely to be a hygiene factor in the minds of consumers who will by-and-large continue with pick-and-mix.

5.) Details of the solution (high level for now)

1. Sample non-functional aspects: plan flexibility, customer service, security, privacy, etc. Yahoo and Skype offer services where you get “free” WiFi access for using their services; mobile operators in particular need to remove data service price uncertainty. Bundle 3G data, WiFi and broadband together, particularly where you have unique assets in any one sphere.
2. Explore “Paris Metro Pricing” and other “stupid QoS for stupid network” solutions. Price and meter local/P2P traffic and on-net traffic differently from off-net and global traffic. Issue your own P2P client.
3. Consider following models along the lines of Earthlink in US (muni specialist), or in Stockholm and Amsterdam (shared common fibre infrastructure).
4. Assemble basic bundles, but don’t assume that highly differentiated content (e.g. premium football) will be affordable, unique or compelling in a world of fragmented production and consumption of media, where blockbusters are few and far between.

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Voice and Messaging 2.0 - HYPOTHESIS

To help structure our thoughts on Voice & Messaging 2.0 (“Telephony & SMS meet Skype and Yahoo”) - for the workshops we do with clients, for the research we do on the topic, for this blog, and in preparation for the Telco 2.0 Industry Brainstorm where there’s a major breakout focusing on this - we’ve put together a ‘Hypothesis’, an ingoing point of view to stimulate debate.

The ‘hypothesis’ looks at: Situation, Complication, Question, Answer. We’d be very interested in your thoughts.

VOICE & MESSAGING 2.0 - how to make more money out of core comms services

1.) Situation:

• Erosion of user-to-user voice revenue: marginal price of zero on landline, rapid drops on wireless as bucket sizes grow.
• New entrants: fixed into mobile; mobile into fixed; new competitors (traditionally structured as well as novel).
• Regulatory pressure on mobile termination and roaming rates.
SMS margins healthy, but market saturating.
• Large, generally unmonetised VoIP and IM traffic from Internet providers.
• Growth areas in premium/non-geographic/personal numbers; and premium/shortcode SMS.

2.) Complication

- Almost all voice and messaging services are relatively undifferentiated against each other.
- Internet IM systems ultimately threatens bulk of SMS revenue, with an expectation of “free”.

3.) Questions (in the mind of operators today)

- Are there revenue and cost optimisations for the legacy products that we’ve missed?
- What should we do to differentiate our existing voice and messaging services from each other and new competitors?
- What new voice and messaging products should we be creating and selling?

4.) Answer (our suggestion re the problem, based on analysis in the Telco 2.0 Report)

1. Treat mobile and fixed handsets as your leading retail channel. Sell more calls and messages by increasing service intelligence and customer intimacy.
2. Every part of the telephony experience offers room for improvement, from discovery/directory to rendezvous, the talk itself, and managing the feedback of the CDR data into the experience.
3. Stop looking for the golden idea and partner with small and large innovators: think “i-mode for voice and messaging, not web”.

5.) Details of the solution (high level for now)

1. Look at how the up-sell is done from SMS to voice and MMS. Where is the ‘call to action’? Where is the ‘one click’ to the most likely recipient? How can calendars, photos and music playing be used to stimulate more usage? How can landline CPE be used to create stickiness and sales?
2. Focus on privacy feature; presence features (in the wider sense of sharing experiences in real time); improved audiovisual experience; better handling of dropped calls; better voicemail interfaces. C2B/B2C interactions are a particular area of opportunity - “next-generation freephone” services.
3. Partner with the emerging service providers and open up your promotion, retail, support, portal and billing to let these new entrants deliver value through your business

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Content Distribution: Carrots & Sticks Required

The Register has just published one of the best articles on Content (specifically IPTV and VoD) that I have read in a long time. Alexander Cameron goes into great depth on the issues faced by content owners and distributors (telco operators and ISP’s) in sorting out a mutually acceptable business model for the distribution of digital content.

A word of warning: this article is not for the faint-hearted. It is 9 pages of solid beef so make sure that you set aside a good half-hour.

For the modern-day busy bee, here is our (much shorter) analysis of the piece:

The Challenge of DRM
Cameron outlines the essential paradox faced by the content industry: How to make content available for users to copy across their devices while preventing illegal copying from one device to another? For example, once users have bought a song they feel that they should be able to listen to it on their iPOD, PC or phone and not have it tied to a specific form factor. However, content owners are loathe to offer this as it opens the market up to the abuse of illegal copying via P2P networks.

The Carrot and Stick Approach
What’s needed, according to Cameron (and I think he’s right) is both better content services (so people feel willing to pay) combined with an effective deterrent. Currently, neither really exist.

Better Services…
Telco operators (and other digital distributors) are not providing a simple, differentiated content distribution service that customers are willing to pay for:

  • The volume of truly personalised content on my phone is low
  • The price of content on my phone is too high
  • My ability to copy and manage content is limited

There are one or two exceptions to the rule. Take MelOn in South Korea. Users pay either a flat-rate subscription fee (for all-you-can-eat) or a per-song fee to ‘rent’ music from SK Telecom’s legal archive during the subscription period. They can play music on any device, anytime. Successful? The service has over 5 million subscribers and is Korea’s number 1 music site.

…Supported by Advertising…
If Operators can deliver personalised content services effectively, then this opens up the upstream advertising channel. Cameron argues that more content should be free and paid for by targeted advertising. I mentioned in a previous post that Channel 4 have started doing this with their on-line Big Brother clips. This advertising-led model can then be supplemented with on-demand back catalogue content that users pay for. But this ONLY works with incredibly good CRM systems - an operator has to understand that, despite being an England rugby fan, I would pay to watch re-runs of many of the Welsh International matches from the 70’s (what a side Gareth Edwards, Phil Bennett, JJ and JPR Williams…)

…Backed by Effective DRM…
DRM is a problem because people do not understand it and resent it. Preventing me from playing music I have downloaded to my phone on my PC really hacks me off. Cameron argues that content owners should instead be working with ISP’s and Telco’s to prevent illegal file transfers through P2P exchanges - this is the ‘Stick’. Both parties are incentivised to reduce illegal file transfers. The ISP’s and opeators need to reduce the loading at the edge of their networks (where the bottle-necks are) and the content owners want to prevent revenue leakage.

A great article, really well thought through.

BTW, we will be covering exactly these issues in the Advertising Funded Content breakout on the second day of our Telco 2.0 Industry Brainstorm 2006.

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June 27, 2006

Telco 2.0 Industry Brainstorm, 4-5 Oct - Update on stimulus speakers

We’re delighted to announce that we have 12 senior speakers already confirmed to stimulate the Telco 2.0 Industry Brainstorm. They are CxOs, VPs or Directors at: Amsterdam FTTH initiative, BT Group, Daiwa Securities, Deutsche Telekom, Earthlnk, FastWeb, France Telecom, Google, OglivyOne, Orange, Mobile Entertainment Forum, SonyBMG, Swisscom, Telefonica Moviles, TeliaSonera, Telio.

We’re looking to confirm another 12 speakers plus some major sponsors and event partners in the next week or so.

Our co-located event on IMS (IP Multimedia Subsystem) Services is going great guns as well. See update on the IMS Insider blog.

The two events promise to be a a pretty exciting gathering of commerical and technical leaders from across the world…as one of the speakers put it: “The event you are organizing seems like a breath of fresh air after all the traditional (and traditionally boring) conferences I am used to attend.”

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Guest post: John Cooper, MetroNanoNet

We’re pleased to have John Cooper, an entrepreneur and consultant based in Austin, Texas, provide our first guest post. Given the high cost of sale, provisioning and billing for traditional broadband service providers, we were interested to hear about his proposed alternative model, the MetroNanoNet. This fills a space between traditional service providers and municipal networks. The natural unit of commissioning of connectivity may not be the household or individual, and the most promising sources of differentiation may come from how you fund and price infrastructure, not technology, or bundling with services. Although like any new venture, its success is not guaranteed, we feel this is a strong “Telco 2.0” story, as it combines a hard-nosed business approach with a lower cost model and highly differentiated sales approach.

Sometimes a “whack on the head” can cause us to look at things with an entirely new perspective. Take telecommunications, for example.

What would voice and data connectivity and services look like if you landed on this planet today and were given our present day resources to use? Would you put together something that looked just like a traditional telecom or cable company? Would you borrow aspects of the old while adding new features? Or would you develop an entirely different approach? Would you build a ubiquitous network for as cheaply as possible like a utility? Or would you build a commercially-sponsored network like the US TV network from 50 years ago? Would it be a cooperative rather than competitive effort? Would revenue from applications, advertising, content, or subscription fees subsidize the cost? Would a handful of large companies provide services or a multiplicity of small companies?

How could you leverage the huge, newly connected broadband market that the new network created? Would content and infrastructure go together, or be provided separately? The chart below compares how differently we could look at telecommunications and the Internet, when we start with a contrarian view to the traditional telecom model.

Business IssueTelecom/TraditionalMetroNanoNet
Vision20th Century21st Century
Rationale, MissionLeverage Market PowerLow Cost, Keep it Simple, Deploy & Learn
StrategyDominance, ControlNiche
SizeHugeSmall, Distributed
StructureCorporate HierarchyCommunity Network
TechnologyLeverage Old, Add NewStart with New
QoSCarrier GradeBest Effort
Back HaulFiber First, point to pointT-1, DSL, point to point, fiber
CustomerIndividual subscribersCooperatives
MarketingCorporate Subscriptions to IndividualsEnabling Community Cooperatives
SalesDirect, InternetIndirect, Channels, Internet
StaffConsultants, HireOutsource, Lean internal staff, LPs
Accounting, PricingClosed, exploitOpen, share
OperationsOwn, buildLease, buy

Such a new perspective starts with the hypothesis that a new type of infrastructure makes possible a new service model. Market share, not high margins, drive this strategy, since gaining a high-percentage of homes passed is a key driver to ultimate network profitability and risk mitigation. Incumbent network businesses have traditionally counted on market dominance for their business models to work - a legacy of their regulated utility network history. Traditional utilities enjoyed universal market coverage in exchange for rate-of-return regulation.

The current theme in municipal wireless network deployments does that on a small scale, where providers secure an anchor tenant before installing a network to lower their revenue requirement from retail sources and accelerate their return on investment. But they still rely on a version of monopoly franchise. So what would a voluntary, unregulated monopoly utility look like? A third alternative would be a MetroNanoNet (MNN), with market-based, voluntary community aggregation to share costs and lower risks: multiple 21st Century telecommunications cooperatives served by their own “nanonets,” loosely joined via the Internet. It would be a “horse of a different color.”

Start with a broadband network subsidized by heavy community involvement and supported by community members, minimizing excess capacity to provide communication services at the lowest cost, in much the same way that Southwest Airlines gains a cost advantage from flying full, fuel-efficient airplanes.

MNN seeks to avoid the old ways and costs of incumbent or new entrant telcos, cable providers, wireless, or satellite companies by charting a new course. Providing back office functionality, MNN is a Systems Integrator & Managed Service Provider for communities, negotiating long-term service relationships with the community cooperatives it helps to create.

MNN’s business approach is its unique advantage: aligning a new business model to match new wireless broadband technologies and markets that have lower budgets or lower risk tolerance. Instead of criticizing traditional telecom companies for not extending their markets to rural or low-income areas, why not imagine what a more appropriate business model would look like for such hard-to-serve markets?

Departing from the traditional view of telecommunication networks as large complex network infrastructures, instead seeking the smallest, simplest network possible enables a different perspective, indeed, a paradigm shift. As a systems integrator (see service portfolio below), MMN uses a web-based service delivery tool that provides a competitive advantage, enhances service quality and dramatically lowers service delivery costs.

As MNN partners with local communities to enable effective and efficient communications, it fosters healthy functional communities. It will play different roles at different times, depending on the circumstances, the service lifecycle and the opportunity:

  • Community Formation & Education Services Provider re Broadband Options;
  • Customized Community Portal Provider & Host;
  • Systems Integrator:
    • Network Equipment VAR;
    • Network Design & Deployment Service Provider;
    • Network Operations, Management & Maintenance Service Provider;
  • Internet and VOIP Service Provider;
  • Asset Security and eNeighborhood Watch Services Provider;
  • Peer-to-Peer Services Broker;
  • Community-selected Open Source Application Service Provider; and
  • Local Content and Local Advertising Service Provider.

MNN sets itself apart as a commercially-oriented for-profit community network service provider. The special interests promoting community networks today share a common social perspective, generally aligned against conventional commercial network approaches, with some even believing that Internet access “should be free.”

Consequently, their solutions tend to focus on very low-cost, self-delivered solutions to create homegrown community networks, sometimes using homegrown equipment. An exception is FON, a popular community network concept from Europe that harnesses individually-provided residential access points and includes a profit-motive for its foneros, effectively sharing a commercial ISP’s connection service. But requiring members to violate their service contracts and making the ISP an involuntary participant in the network services supply chain is a fundamental flaw.

In contrast, MNN’s solution would use commercial-grade Wi Fi Mesh & WiMAX equipment and commercial-grade back office support to enable commercial quality services and network management with community cooperatives as customers, rather than disaggregated individual subscribers. MNN will help form the community cooperatives, deploy their networks using wireless technologies, and organize and provide the services they need to meet their own telecommunication needs.

MNN envisions a new type of communications network that sheds many of the costs and restrictions inherent in the old telecommunications paradigm (i.e., dramatically lower sales, marketing, operations, and customer support & service costs).

By providing real-world neighborhoods and communities with their own networks, amid a growing awareness of cyber-world social networks (the “Social Internet”), MNN addresses local community needs head on, generating revenues through community cooperative service fees. Fees are based on the services above, delivered in three basic service areas:

  1. Access First: data and voice (broadband Internet access, local mobile and residential voice services);
  2. Crime Stopper: security (neighborhood-watch and home-watch surveillance video); and
  3. Community Services: peer-to-peer video & storage backup, calendaring, local content, etc.)

In such community formation, MNN creates the relationships needed to up-sell more advanced wireless and mobile services to cooperative members and generate supplemental revenue from new marketing and advertising models.

Use of Web-delivered information and services is a key feature of MNN’s service offer that facilitates community interaction:

  1. the community websites that communities can customize; and
  2. the community splash page that all users must click through when logging on to an MNN nanonet.

These community websites will be designed using open source Drupal social networking software and data tables to enable a limited degree of customization of content and features based on community member selections. The splash page provides a common user experience over all the nanonet networks.

In this way, MNN seeks a “sticky” customer experience, where individual cooperative members benefit from the selections and activity of their fellow members in a shared space that features localized content.

MNN challenges any potential competition with its unique pricing strategy, bundling basic broadband service with applications like VOIP telephony service and video surveillance in a basic membership with target pricing at below $20/month/member at full-community participation. Enabled by its unique local area network services and processes, community portal services, and low-cost secure, reliable and scalable support and delivery model, MNN will offer communities compelling telecommunications value.

Furthermore, the MNN nanonets, Control Center and Community Portals will be built with open standards equipment and software tools that deliver a lower TCO. With MNN, communities can focus on their unique needs and gain benefits of economic development through collective action, similar to the gains seen in the past few years by enterprises leveraging new wireless LAN technologies.

Fast-growing communities on the fringes of larger urban areas and in the developing world are most ready to initiate such a new approach. Keenly aware of their needs for broadband infrastructure, they know what they are missing out on and they lack the choices that more mature, dense urban and suburban neighborhoods and those in the developed world enjoy. Rather than feed these communities with fish, MNN will teach them to fish - empowering, not exploiting.

Is this model a threat to traditional telecommunication companies or a road to their rejuvenation? That will depend on a company’s attitude. If the success of Craig’s List teaches nothing else, it shows that every company in today’s business climate must adapt to new rules: innovate or be attacked. What if newspapers had adapted more quickly to the Craig’s List low-cost social network model years ago, to get closer to their communities and customers?

Similarly, telecom and cable companies, some of the last holdouts to enjoy monopoly or duopoly protection, must radically innovate their business models to survive and nothing should be out of bounds.

If one follows the progress of Web 2.0 companies and the freemium business model one understands the competitive playing field is already undergoing dramatic change. Silicon Valley Watcher editor Tom Foremski highlights what he calls The Rise of the Bad Competitor, where a competitor will simply give away what another company sells, making a commodity of just about everything. How to compete against such a threat? Incumbent telecoms must realize that their ISP and voice revenues are threatened by business models that will give away voice and basic ISP access to create a social network that will buy other products and services. Skype, anyone?

The size of the telecom pot of gold, the erosion of telecom market protections and the availability of easy-to-access Internet processes and digital tools make this model inevitable. Large incumbent telcos would do well to start developing such an alternative approach to their businesses now, because MetroNanoNet and others will. If municipalities can take control of their destiny, so can neighborhoods and communities, with their own nanonets. Now is a time for new ideas and new models. As we say in Texas, “No use closing the barn door when the horse is already out.”

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June 26, 2006

A SIM-only approach to Mobile Contract Negotiations

Further to my recent post about buying a phone on Ebay without a contract, I have now renegotiated my contract with my service provider T-Mobile.

They have given me 400 minutes a month + unlimited data for £22.50 per month. I am rather pleased with this because, assuming I get close to the 400 mins each month, my average cost per minute will be under 6p to all UK mobiles and landlines (they will still sting me on international calls but that is another story). This price is £10 per month less than they normally charge because I have not asked for an upgrade (I bought a Treo 650 on Ebay for £230 because I like the phone). Thus, over the 18 month contract they have tied me into, I will nearly claw back the price of the phone (18 x £10 = £180).

Overall, this also compares very favourably with other providers in the UK. Take Vodafone who would charge me nearly double the price for a comparable package (without the unlimited data but with mobile TV and other frills). They would also limit me to a very small selection of handsets - a result of their desire to remain vertically integrated and control my experience.

Now we are not here to push particular operators, but hats off to T-Mobile for starting to embrace Telco 2.0! Their Flext and Web ‘n’ Walk packages are a clear indication of their willingness to decouple connectivity, services and handsets and give customers the flexibility and control they want.

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June 23, 2006

New Product Development - Lesson from Old Media

Interesting example here of ‘Media 2.0’ and very relevant to Telcos looking to develop new services that add value to what users already do each day, rather than trying to get them to do new things at huge cost to the telco (eg. mobile TV).

In this case it’s Old Media - the Guardian newspaper in the UK - applying some relatively simple (low cost) technology to improve the customers’ everyday experience with a simple, potentially very ‘sticky’ service that leverages the newspapers core skills and assets, and opens up more opportunities to advertisers. Those should also be, of course, the key criteria for telco NPD (‘Voice/Messaging 2.0’).

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June 22, 2006

A new diversity of connectivity options

One of the most useful pieces of framing we are using in our Telco 2.0 workshops is the explosion of diversity in the connectivity options people have available. The table below summarises them, but from a business rather than technology viewpoint. In which ways does the money flow between applications/service and data transport, if at all?

NameTechnical relationship of service and connectivityFinancial relationship of service and connectivityExamples
vertically integrated interactive serviceIntegratedIntegratedPSTN, mobile voice, SMS
vertically integrated broadcast serviceIntegratedIntegratedFM radio, DVB-H
stand-alone best-effort connectivitySeparateSeparatedial-up, today’s broadband
QoS and billing enhanced connectivityApplication-aware; session/control plane integratedIntegratedIMS
service-funded connectivityApplication-aware; no technical integrationIntegratedSkype Zones
user- or community-built free connectivitySeparateSeparateOpen Wi-Fi, basic muni service, mesh
local unrouted connectivityVariesNo monetary exchangeBluetooth, Family Radio Service
other connectivityApplication-agnosticTieredParis Metro pricing

The relationship can be charted out over time. We divide up the total value of the connected communications products and services that users engage in. The relative value contribution of each channel to the user is what we track over time.

The picture for services access through mobile handsets is below.

Naturally, similar diagrams could be drawn for fixed technology, where broadcast would dominate today. The numbers are our own, but there are decision science tools out there that can drag out quantitative analyses from large group qualitative evaluations.

The world in 2016 is the destination: Telco 2.0, but there is already significant change in the market well before that.

Do you have a strategy for each of these forms of connectivity? Do you agree with the division of the world and the straw man numbers? Comments, as they say, are open.

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June 21, 2006

Big Brother & the Art of Advertising-Funded Content

The BBC (no advertising), ironically, published an article recently about the advertising success of Big Brother for Channel 4.

It seems that Channel 4 have been extremely successful in generating big revenues in 3 areas:

  • Broadcast Advertising & Sponsorship
    Bog-standard advertising revenues from the TV broadcasts are higher than for most programmes not just because of the high viewing figures that Big Brother generates, but because the programme brings in the 16-34 year old age group that watches less TV than other segments. The programme sponsorship alone is reckoned to be worth £4.5m.
  • Text Voting
    Viewers are encouraged to participate and interact with Big Brother by voting on who they think should stay in the house or be unceremoniously thrown out (a real blessing if you ask me, it must be sooo boring). In 2005, the final night generated 6.4 million texts. At around 50p per text, this single night generated £6.4m in revenues (to be shared between Channel 4, the production company and the network operators).
  • On-Line Advertising
    This is perhaps the most interesting area for Telco’s. No revenue figures are revealed, but Channel 4 makes money by showing 12 free clips a day of what is going on in the Big Brother house with each clip preceded by a 30 second advertisement. The Big Brother website has generated more than 100 million hits (presumably from those elusive 16-34 year olds), so the advertising revenue is likely to be significant.

Seems like there is money in content after all.

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Spam: a telco’s best friend?

A Skype user reports his first telemarketing spam:

While having a conversation with my friend, Joe Klein, of the PodcastVoiceGuys he told me that he had another call coming in and asked me to hold for a moment. A couple minutes later he came back on the line and told me that the call was a recorded message that appeared to be a telemarketing pitch-in Spanish!

Joe said he couldn’t believe that he just received what he thought to be a telemarketing call on Skype. I jumped out of my skin, realising that this ghastly plague may already be affecting the vast Skype community!

It has long been obvious that the price of telephone calls between people who know and trust each other was heading towards zero. The good news is that not everyone knows or trusts each other. Here lies a possible replacement revenue stream for the metered minute.

Unlike with email, telephony has traditionally always come with a bill attached. That billing could be used in new and innovative ways. When Alice wants to connect with Bob, Bob may set a toll price before someone requests to become a buddy. If Bob accepts your request, Alice pays nothing. If Bob rejects it, Alice loses her stake, with a commission to the telco.

There are many other possible variants of the scheme by which Alice and Bob establish their relationship and excluse those who would otherwise abuse our attention. No matter which one is the right one, you know that by the time the talk starts, the opportunity for a telco to make money has stopped.

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June 20, 2006

Mobile Phones Tied to Contracts?: How Passé

I don’t want to harp on about it, but I recently bought a Treo 650 (an upgrade for my my broken 600) and I love it dearly. I got it on Ebay because my service provider, T-Mobile, doesn’t offer the Treo in the UK.

I was staggered by the number of phones being sold without a contract each week on Ebay in the UK - over 30,000 versus 500 with a contract (I have assumed an average 5-day listing).

Assuming most of these sell, this equates to around 120,000 mobiles sold a month or nearly 1.5 million a year. All of these are sold without a contract and most have been unlocked or can easily be unlocked (I unlocked my Treo from Orange for £12).

Historically, the great cry from operators has been that people want cheap or free subsidised phones (which they pay for over the life of the 12 or 18 month contract that they are locked into).

The massive growth in phones being bought at much higher prices on Ebay (I paid £230 for my Treo) without a contract indicates that consumers are voting with their feet. 1.5 million phones is 7.5% of all mobile phone sales in the UK and this number is rising fast.

It seems to me that consumers are saying that they are very willing to pay a higher up-front charge for the phone OF THEIR CHOICE and then search around for a sim-only contract package that suits them.

Telco 2.0 is all about changes like this. The vertically integrated business model that operators have adopted so successfully is slowly being unpicked. Operators are working hard to defend their integrated model in the UK. One example of this has been their move into the high-street to ensure that the independent retail channel does not exert too much control over devices and service plan sales. Just this week, we hear that O2 is apparently looking to buy out The Link.

However, that Ebay number makes a move like this sound like a rear-guard action. I wonder just how long the operators can hold back the tidal wave?

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June 19, 2006

Telco’s Get a Helping Hand from Tom Tom

I installed Tom Tom Navigator 5 on my Treo 650 over the weekend. It’s not quite as easy as they make it sound on the box - I finally confirmed that I live where I thought I lived at 1am this morning (having started the process at 11pm on Sunday night).

However once it’s set up, it works like a dream and has a really simple interface - Tom Tom have done a great job with the software. One thing I really liked was that they have pre-loaded loads of useful contact numbers for Petrol Stations, Restaurants, Hotels, Airports, Parking and other things. This means, for example, that if you want to call a local restaurant the GPS system will give you telephone numbers based on their proximity to you and it is a simple click to be connected. I suspect that if you are travelling to someone who is in your contact list, you can also click to call them (and tell them, for example, you are running late). I haven’t yet discovered this feature but I am sure its there.

What a great example of providing connectivity for people in a contextually relevant way. This is just the sort of thing the Telco’s should be doing. After all, it is they, not Tom Tom, that benefits from this feature through increased Voice and Messaging revenues. I am convinced there is a great opportunity for Operators to push harder at working with software developers to ensure that Telco network services are integrated with software applications so that it is really EASY for users to spend money on Telco products.

Anyone got any good examples or ideas?

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June 15, 2006

The BBC: New media masters of edge competence

There are so many ways in which the BBC is leading the pack in terms of recasting its own business model and delivery platforms. Here’s one example that every telco startegy planner needs to understand.

Umair Haque for a long time has (co-)written an extremely insightful blog on new media, Bubble Generation. He coined the term “edge competence” to describe organisations that are able to leverage value creation by their own customers/users.

The BBC News website now has a section of “most popular” stories at the side. You can easily imagine the collective efforts of users slowly displacing basic editorial efforts. Editors will still be required, but will evolve into new more value-adding roles. Assuming the editor knows which stories are “most important” is a top-down centralised approach to information whose days are numbered.

We already see this evolution elsewhere. Yahoo News (human editors) is challenged by Google News (computer algorithm based off links, among other things). In turn, both start to lose traffic to services like Digg, which is entirely about the collective “hive” intelligence of users both submitting and selecting important news. (What do you mean you haven’t heard of them?! Ah, that’s why we call it Telco 2.0 — new competencies, value chains and profit centres.)

One last example today from The Guardian:

Gamers don’t want any more grief

Players who abuse others in online games may soon be ostracised as virtual communities start to police their own environments.

A traditional telco product development approach would also have “prevent abuse” as a requirement. The solution would have been to eliminate abusable functionality, insert expensive human intervention under the ever-expanding customer service remit, or implement some heavy-handed identity scheme. All are valid, but none are likely to generate the same profit as letting the users create and exchange value themselves.

A telco with ambitions to remain in the service/application space needs to learn how to establish the hub or market place for them to come and meet, or to contribute and participate in other peoples’ hubs by extending your distribution, service, billing and support assets into their world.

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Connectivity: It Ain’t What You Do…It’s The Way That You Do It

There has been a bout of mini-hysteria in response to the latest gizmo to come out from those clever chaps at Google Research. In what amounts to an academic paper (co-published with Michael Fink of the Hebrew University of Jerusalem), they describe how they can pick up the audio output from TV programmes on the microphone of a viewer’s laptop. The laptop then ” irreversibly compresses the viewer’s ambient audio to summary statistics” (their italics). The Google lads then decode the stats to determine the programme and provide a 4 key services (described below) to the viewer.

In a nice turn of phrase, they describe this as mass personalisation as it combines the mass media of broadcast TV with the personalisation of the Internet (they provide personalised services to people based on what they are watching).

I want to quickly put aside the privacy/security issues that many people are wailing about. “This is big brother” and “They are eavesdropping” seem to be the big cries. Well, firstly, they make it pretty clear on page 1 of the paper that the computation to turn the audio into statistics is done locally, and irreversibly (by the viewer’s PC), not by Google.

Secondly, even if they could eavesdrop on conversations, is that so very different to today’s Telco Operators? Operators could eavesdrop on our calls all the time. In some parts of the world they are discouraged by legislation, in others I suspect they are postively encouraged to do so by the state. Surely, it wouldn’t be too tough to protect us with similar regulation or legislation from what Google proposes?

Sorry to be unfashionable, but I think that what they have done is pretty smart. It demonstrates why they are light-years ahead of many Telco’s when it comes to the Telco’s own core competence: Connectivity.

To explain this, it is worth looking at the 4 applications that the Google researchers suggest could exploit the technology:

  • Personalised Information Layers
    Once the technology has recognised what is on TV (in their example it is that Hollywood mini-hunk, Tom Cruise), then it can search a database for relevant products and services that might be relevant to the user. This can be further refined by cross-referencing with the viewer’s own preferences or demographics. ‘Get a signed photo of Tom at www…’ for a teenager, or ‘Tom is wearing a Gold Rolex…’ for the minted middle-ager.

Here’s a pic showing what Nicole Kidman is currently wearing on a viewer’s TV show…

Advertisers, of course, could join the party by leveraging Google’s core business, Paid Search, and bid for the right to pop relevant advertisements to the viewer (on the laptop).

Connectivity Lesson: Google has developed a terrific tool for connecting users with relevant products and services that is based on context + user preferences. Advertisers are connected with their potential customers contextually as well because the advertisements can change to match the action on the screen.

Thus far, most Telco’s have only scratched the surface when it comes to personalising product & service offerings on their portals and in their device menu structures. A few enable the most used services to ‘bubble up’ to the top of the menu structure, or to display more prominently in the portal, but their is little attempt at making products and services contextual - e.g. when two users are SMS chatting, why not screen pop something that says ‘Call [friend’s name] now’. As for contextually advertising, Telco’s have yet to start.

  • Ad-hoc Peer Communities
    Flickr, MySpace, Yahoo!’s My Groups and other social networking websites have proved that people like to interact with others with similar interests. Google propose using their technology to give people real-time access to communities of people who have similar interests and/or are doing the same here. For example, viewers could join a chat group of other people that are watching the programme.

Connectivity Lesson: This is a great example of connecting people. This is what Telco’s do for a living. The difference is that Google is helping to get groups together - something that Telco’s have often talked about (Calling Circles & Buddy Lists etc.) but done little about. Currently, I can talk to friends I already know (assuming I have their number), but I can’t easily find a way of chatting to people on my phone who have the same interests as me, or are doing what I’m doing. The reason, I think, that Telco’s find this hard is that they have traditionally had very poor CRM systems because they have been delivering a single commodity product - plain Voice - and have not really had to segment their customers beyond what can be achieved by a few tariff plans. In the new Telco 2.0 world, this will need to change.

  • Real-Time Popularity Ratings
    This will enable people to see how popular a particular programme is at anytime (and for their particular demographic group or interest segment). Also useful for advertisers to see what types of people are watching what programmes (and adjust advertising messages accordingly)

Connectivity Lesson: I don’t want to repeat myself - this is clearly about giving people and businesses the information they want to make better decisions about what, or who, they connect with.

  • Video “Bookmarks”
    Viewers can press a button on their laptop to record all, or part, of a programme they are watching and produce a personalised video library. They get the content they want - a kind of ‘Video-Storage-on-Demand’.

Connectivity Lesson: I think you’ve got the idea now. Content/Advertising/Voice & Messaging is all about Connectivity.

Now here’s the tricky bit: My editor told me to write about ‘Content 2.0 - Advertising & Attention’ but this piece is as much about the connectivity associated with Voice & Messaging 2.0. I suppose this shows how Telco 2.0 is all about breaking down the barriers. I’ll sling this in the content bucket and be damned…

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June 14, 2006

IPTV - effective business case lacking

An article today about the value of IPTV and Triple play re-iterates the analysis that’s in our Telco 2.0 Report: many more opportunities to innovate in voice and messaging and leveraging mobile to support upstream advertisers/retailers than in content per se.

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Telco 2.0 Industry Brainstorm, 4-5 Oct, London

As we mention in our ‘Welcome’ post, there’s a big Industry Brainstorm on ‘Telco 2.0’ on 4-5 Oct in London, co-located with the IMS Services Forum.

You can link to those to review in detail. However, we thought we’d share some of the features which make it rather different to the normal ‘Death by Random Powerpoint’.

The event uses a process called ‘Mindshare’ to enable a genuine ‘brainstorm’ with over 100 people. This is a structured and facilitated process that combines short, specially briefed stimulus presentations with group interactivity (supported by collaborative technology - wireless laptops linked together by special software that allows anonymous and simultaneous long hand input and voting - much, much more than a keypad) to enable genuine large group issue-clarification and problem-solving.

The process focuses on generating practical industry next step actions on the critical issues of ‘How to make money’ out of Voice/Messaging (vs. Skype/Yahoo), Ad-funded Content, and Broadband Connectivity.

The speaker presentations are designed as stimulus for debate. For the keynotes, presenters make up a small panel (2-3 people) of carefully selected peers. We ask each presenter to deliver a short (15 mins) presentation on a very specific topic. The whole audience then feedbacks using the brainstormin technology and the panellists are probed by the facilitator. For the more in-depth discussions (in the breakouts) we use a similar process, but allow more time for debate, and structured discussion. All discussions are captured and turned into a verbatim report.

The events are restricted to senior industry ‘insiders’ - leading practitioners who are looking to make breakthroughs in the areas they focus on.

Of course, the normal networking benefits associated with a major industry event also apply, but we think the brainstorming will be rather exciting!

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Advertisers Enthusiastic about Digital Media

The American Advertising Federation recently conducted a survey on digital advertising.

Highlights of the survey include:

  • 91% of advertisers find the online media environment “empowering to advertisers, allowing the ad industry to shape its own development”;
  • Digital media offer high ROI to advertisers (especially Paid Search);
  • User-generated content sites (MySpace, YouTube, Facebook) are preferred to Blogs(!) which are “too risky to advertise with due to lack of predictability of editorical content.” (Shame…)
  • Paid Search will increase from 9% of the online advertising budget in 2005 to 11% in 2006 and 23% in 2010.


  1. Advertisers like to advertise in contextually relevant sites where they know visitors will be interested in their products and services. (Surprise, surprise);
  2. Advertisers will pay good money to be connected to the right people.

Operators currently connect people, how long until they cotton on that they could get a slice of the action by connecting advertisers and consumers?

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Vodafone New Strategy - Convincing?

On the IMS Insider blog we captured 5 of the best analyses of Vodafone’s new strategy (which is already prompting a shareholder mini-revolt). All look at it from different angles, but all are aligned in their macro analysis of the ‘sustainability’ of the strategy (as it has been presented publically, at least). Four of these analyst-bloggers have been involved in the design of the Telco 2.0 Industry Brainstorm (co-located with an IMS Services Brainstorm) on 4-5 Oct in London, and will be participating as ‘Analysts-in-residence’.

“Bumps in the long road to Vodafone 2.0”:






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Can you have your connectivity cake and eat it?

The telecom industry is facing a fast and traumatic shift in structure, from vertical integration, via various “oblique” business models, to a more horizontally layered structure of transport, platform, service and relationships.

A common lament in the meeting rooms of telcoland is that “we don’t want to become a dumb pipe”. Regardless of the merits or otherwise of the pure connectivity business, there’s an important lesson to be learned here. Many other highly profitable and innovative industries exist despite their services being “commodities”. Thus, in finding inspiration for new strategies and products, you are unlikely to find satisfaction from looking at traditional industry journals, research reports and market intelligence. Each one is likely to be framed around sustaining the current broad status quo.

One of the greatest masters of customer segmentation and relationship management is the UK retailer Tesco. Unlike Wal*Mart, it has adopted a broad spectrum approach to the market, offering both own-label “value” products, as well as the aspirational “Finest” sub-brand.

In its early days they used the brand to introduce pre-packaged meals above the usual quality of factory fare. Over time the brand has been stretched to include more of their range. Indeed, by now even some of the plainest of foods — in this case a sponge cake — have received the margin-enhancing treatment. It can only be a matter of time until Tesco Finest Toilet Roll features in every second British home.

If Tesco are able to create significant margin boosts with relatively modest improvements to product, packaging and promotion, what are the parallel opportunities in telecom?

Our “serving suggestion” is that connectivity is most emphatically not a pure commodity. Operators face many opportunities to differentiate their service by quality (and not just network QoS), bundle together different combinations of connectivity, enable more seamless interoperation of devices such as wireless home gateways and cellular devices, and enable the service to grow with the user. Indeed, the deeper one digs, the more recipes there seem to be, many of which appear untried. You hardly need look further than how Tesco themselves manage the sales and marketing of their own telecom products for ideas.

Who will be the first to offer a pre-paid broadband plan which you can top-up at the supermarket check-out? High free cash flow, no billing costs, no bad debt or fraud. If it turns out to be Tesco who get there first, shame upon the industry.

By drawing inspiration from outside the industry, and benchmarking against best practice, you increase your chances of sweeter, moister and more satisfying returns.

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June 13, 2006

Content: A Case of “Emperor’s New Clothes”?

We had an interesting email from Robert Shaw, Deputy Head of Strategy and Policy Unit at the International Telecommunication Union (ITU) in response to our first post on Content. By coincidence, he gave a presentation on content last week in Lithuania. His view its importance to Operators is overblown. The link to the .pdf of his presentation can be found here, it’s well worth a read.

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Content - Regent or Rubbish?

The debate over the future value of content, particularly mobile content, to Operators seems to show few signs of abating. Currently, there seems to be 2 camps:
(1) Those who see content as the lifeblood of the industry, and
(2) Those who believe that content will never make any money for Operators.

Over the next several months in the Advertising & Attention section of the Telco 2.0 blog , we want to examine this debate in detail and also explore the option of a ‘Third Way’ for Opeators to make money out of content & advertising - one that leverages their unique network, billing and customer relationship assets.

Content is King?

Most Operators and many established market research organisations still believe that content will be a huge source of revenue (and profit) for Operators. Typical evidence cited includes:

1. Operators (& others) continue to make a bundle of money from ringtones

2. Mobile, Fixed and FMC Operators all over the world are launching Video & IPTV offerings: Vodafone, Orange, Cingular, Telefonica, BT, to name a few…

3. Analysts are forecasting substantial growth in the market for content. For example, Informa predicts the market for mobile music, games, tv and video will reach $25.9bn by 2011 and Strategy Analytics reckon the overall Mobile Data market will be £55bn by 2008.

…or Not?

But there are plenty of skeptics out there and they make a compelling case against content for Operators. Leading the charge (on this and many things) is a brilliant academic, Andrew Odlyzko, who published a great piece called ‘Content is not King’ back in 2001.

This is well worth a read - his overall thesis that communication (connectivity) not content, is where the real value lies in the digital world has largely been borne out in the last few years on the internet, where free content is virtually limitless and people pay to be connected (e.g. Businesses paying Google billions to be connected with interested consumers…). The skeptics can point to other evidence too:

1. The money’s in communication NOT content. Forrester Research pointed out in a training session at 3GSM in February that European consumers spend €101bn on telecommunications (and still growing), but only €87bn on all content (news, books, cinema, TV, etc.) WITH very low growth!

2.Power in the content distribution value chain lies with a few BIG content rights owners. Even if the Operators generate revenue from distribution, the margins will be razor-thin.

3. Margins will also be put under pressure because there are so many alternative distribution channels for content - both TV and the Internet vie with the mobile channel and the Internet is FREE - why, as a content rights owner or a consumer, would you pay a telco when you can distribute or receive content for nothing?

4. A whole slew of disrupters are springing up which are distermediating the Operator. Slingbox allows consumers to ‘forward’ real-time TV images from their ‘home’ device (usually a PC or TV) to ANY connected device ANYWHERE in the world. Why pay Vodafone for Sky when you have already paid at home? TiVO stores TV programmes on a hard disk and then enables users to forward them to other devices at a later date. And Akimbo enables users to download and store internet TV programmes. Given that an iPOD already stores 60GB of data now and will probably store 600GB by 2010 and mobile phones are following suit (I have a 2GB SD card in my Treo 650), the future for Operator-led streamed content looks uncertain.

5. The established analyst houses do not have a stranglehold on views about the future prospects of content for the Operator community. There are dozens of highly-informed bloggers out there in the ether who argue (very articulately) that Operators are barking up the wrong tree with their existing IPTV, Music and other content distribution strategies. Among the best are Telepocalypse by Martin Geddes; Eurotelcoblog and Chaotica by the Daiwa Securities analyst, James Enck; GigaOM by Om Malik of Business 2.0 magazine; and Mark Evans.

What about an Alternative Strategy?

In Telco 2.0, we want to widen the debate and explore whether and how Operators can make money from content and, particularly, advertising. Why is advertising so interesting? Well, the advertisers always bemoan the lack of targeting available through existing channels, like broadcast TV, but they still spend huge amounts of money through these channels.

Consider this: in 2004 in the US, advertisers spent $67bn on TV advertising compared with $54bn for ALL pay TV revenue. The cable and broadcast companies make as much money UPSTREAM from advertisers as they do downstream from consumers. Compare this with the Telco industry, in which Operators make 99+% of revenues from their downstream customers and have yet to tap this huge potential.

The same principle applies to the content itself. Content rights owners will charge less to a Telco distribution channel (thus improving Operator margins) IF the Operators add value by driving volumes up.

So how can Operators add value to content providers and advertisers? Well, Google makes money through contextual advertising - ie giving buyers relevant ads based on their search terms. Yahoo! does something similar with its Search Marketing. Microsoft has recently seen the value of giving customers information about products and services they want and is rumoured to be sniffing around Third Screen Media, a company specialising in advertising on mobile phones.

There is clearly a very profitable business model for those companies that can make it easier for two parties to get together - a consumer and …a business/product/film/game/song/other consumer (insert as appropriate). Connectivity is pretty much the core competence of Operators - putting people together via voice and messaging services. Telco’s haven’t adapted this model to the IP-World yet, but they actually have some substantial advantages over their future competitors:

1. They understand the network better than anyone else and have a great opportunity to yoke network capabilities and Internet capabilities together - e.g. contextual advertising PLUS ‘Click-to-dial’.

2. They are know more about their customers’ usage and preferences than either Google or Yahoo! (or virtually anyone else for that matter) so they do not have to rely on a real-time search in order to provide relevant content or advertising to their customers.

3. They have a trusted relationship with each customer, authenticate them to use services and bill virtually all their customers evey month (certainly the post-pay ones) making it potentially possible to collect payments from customers for all kinds of content and services.

This is not to say that it’s going to be easy for Telco’s to become the ‘enablers’ of targeted content and advertising but just that they have more assets and skills relevant to this space than others. The industry is just waking up to this idea:

1. The Mobile Entertainment Forum, a trade association representing operators and vendors, has done a substantial amount of research on what it terms ‘Advertising Funded Mobile Entertainment’ (AFME) - see here for an interesting white paper on the subject.

2. In its latest (poorly received) strategy update, Vodafone said that it would seek to provide “Advertising-based services that are delivered in ways that customers find attractive”. Pretty light on details, but they are clearly looking at this as a source of future revenue.

3. Another industry body, The Liberty Alliance consortium, is exploring how the industry can use ‘Federated Identity’ to share customer information and preferences amongst a trusted circle of vendors (Operators, Advertisers, Content Owners etc.) to better provide targeted solutions to customers. This would also have the added benefit of allowing the customer to sign-on once (probably with an Operator) to buy a wide-range of content and services. The Operator, of course, is in a great position to sit at the centre of the ‘Circle of Trust’ and bill the customer.

4. STL, which is coordinating the Telco 2.0 initiative, has done a great deal of work in this area and has a detailed analysis of the opportunities for Operators in this area in their new report, Telco 2.0: How to Make Money in an IP-based World. They have an interesting blog, IMS Insider, that looks at this and other ‘Next-Gen’ issues for Telco’s and Vendors. Click here for a piece on Federated Identity.

Perhaps the most interesting thing happening in the next few months for anyone intested in this area is a big industry brainstorm in October. This 2-day event will have a whole day dedicated to Content and Advertising and will be a great place for senior executives across the industry to explore the issues in this space.

Well, that’s the intro to what we want to cover in this section of the Telco 2.0 blog. The key thing we want to achieve is a strong dialogue on this subject so, please, feel free to contribute with comments!

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Welcome to the Telco 2.0 Blog

This Blog supports the ‘Telco 2.0 Initiative’, a new industry programme focused on helping with this thorny question: “How do we (telcos, handset manufacturers, Media companies, IT players, NEPs, etc) make money in an IP-based world?”

Our primary focus is on business model innovation, new products and services, new markets and disruptive technology.

The Blog Editorial team is made up of a group highly creative industry practitioners who’ve worked at the sharp end of implementing change within large organisations and growing business within small ones. In addition to the blog we run industry brainstorms and research programmes. See here for full details.

They are supported by consultants and researchers from our sister consulting company, STL Partners.

There is a lot of material in this blog. You can navigate around the site by clicking on the Categories list on the right, using the search function, or the Archive function.

Our tentacles reach far and are highly active. So we hope to bring you the best, quickest and most useful analysis in this blog. Please do deluge us with comments and ideas. That’s what blogs are all about! Contact@stlpartners.com

The Editor

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Telco 2.0 Strategy Report Out Now: Telco Strategy in the Cloud

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