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July 31, 2006

Phone Book 2.0

Navin R. Johnson: The new phone book’s here! The new phone book’s here!
Harry Hartounian: Boy, I wish I could get that excited about nothing.
Navin R. Johnson: Nothing? Are you kidding? Page 73 - Johnson, Navin R.! I’m somebody now! Millions of people look at this book everyday! This is the kind of spontaneous publicity - your name in print - that makes people. I’m in print! Things are going to start happening to me now.

— Steve Martin in The Jerk (1979)

Naturally, the new phone book’s here. All wrapped up in its protective plastic wrapper, here it is:

So to get to the point, what does a Telco 2.0 do to make Phone Book 2.0?

The implication of the question is that you’re in a relationships and personal communications product business; the pipes and business platform are secondary. In the last few years, many telcos came to the conclusion that the link to the pipes was so tenuous (and the need to raise money to service debt so acute) that they spun off their profitable directory businesses as a non-core asset. Now, some are regretting that decision as Google and eBay reap in the profits from the next generation of business directories, and social networking sites explode. Telcos ate their seedcorn.

Before we think about re-inventing the phone book around relationships and distribution, let’s look at some of the problems of Phone Book 1.0:

  • It costs a lot to produce and distribute.
  • The younger demographic isn’t really into paper-based media, or landline phones.
  • “One very large size fits all”, with no personalisation beyond general geographic region.
  • It’s out of date before it reaches your door, and doesn’t improve with age.
  • It’s too big to move anywhere once you’ve got it.
  • It probably isn’t right there at the point of consumption of the telephony service, but hidden on an obscure shelf.
  • It’s limited to one identifier for residential users: home phone number. (Nordic readers will no doubt smile at this quaint absence of mobile numbers and email addresses.)
  • Supports limited search options: alphabetic by surname for residential users; company classification plus alphabetic order within each category.
  • No meta-data, such as reputation.
  • About half of residential users opt-out and aren’t listed.

A similarly damning list could be compiled for notebooks and pencils compared to tablet PCs, but the relative adoption tells a different story. So having covered the weaknesses, how about the strengths?

  • It offers an important signalling mechanism for vendors to express confidence in their business by buying larger adverts. The fact that paper and distribution costs something is a feature as well as a bug.
  • Transparent business model: they pay us, we show you. Trusted to be impartial in who is listed (only as good as their money).
  • It works “out of band” — you can look up numbers easily whilst already on the phone; indeed, “no batteries required”.
  • Simple user interface, universally understood; no capital investment or compatibility issues for the user.

Let us assume that delivery of some physical artifact continues for some time, and that Phone Book 2.0 isn’t a purely digital phenomenon yet. It just evolves and integrates with that online world, just as you might photograph a whiteboard after a brainstorm session with a digital camera. It’s like with all books: they’re still 99.999% on wood pulp, but Amazon has changed the way we find them. Public reaction shows that an all-digital future is some way off.

So could we preserve some of the benefits of paper whilst injecting the values of a Telco 2.0 business? What opportunities are there to create a better product? Firstly, we must recognise the paper phone book for what it is: a physical medium; one with a flexible format (you can tear out bits and scribble on it); and a companion service to your current telephony for introducing consumers to businesses (“analogue Google”).

What is the business objective of our re-design? As well as being an advert business, its job it to induce network traffic, transactions and premium service fees. It’s also part of an emerging identity business, where you broker data and establish trust between parties.

For the commercial (yellow pages) part of the phone book, you can see several possible changes. The physical medium lends itself to dismemberment through perforated pages. If you make it easy to rip out adverts, these are more likely to become coupons or pull-and-keep driving directions to merchants. Like any magazine, there’s also an opportunity to have inserts that are easy to take with you. You can personalise these inserts at a lower cost than personalising the whole phone book.

Every insert entry can be given a URL, but made short (as with services like TinyURL) and passing through the yellow pages directory provider. One way of doing this might be “http://ypag.es/<merchant phone number>”. This then becomes a bootstrap into offering richer services between merchants and consumers, as users can initiate calls from the web site (using ringback or VoIP) and have a better user experience that doesn’t involve having to dictate personal details already known to the directory provider.

The BT phone book promotes their own directory service on the cover. But what advantage does it offer the user? If it doesn’t populate your network address book, or they don’t have a customer relationship with you that’s captured your mobile number to send you an SMS, all they’re left with is brand — an expensive illusion to maintain. There’s also a failure to learn from Internet players here. eBay makes it safer to interact with strangers by using reputation; credit cards offer protection (often above that legally mandated) and extended warranties on goods. By failing to mediate communications between users and merchants, or add value, the directory provider is cutting themself off from the most profitable parts of the transaction. Discovery was only the beginning of the process.

The residential portion of the book could be used as a bootstrap for other business. The directory can be a companion to a website. People who wish to have their numbers unlisted can opt to have an “access code” printed instead; “Smith, Bob 23 Orchard Close X278HBV. These access codes (or landline numbers) can then be entered into the website for additional details on the user. You might be able to fill in a web form (for a fee?) and send the person an email. Yet the recipients’s privacy is protected. Privacy is likely to be a growth business. Perhaps you can offer to sell people a second number for the directory, one that will always go to voicemail in the first instance?

People should be able to update and extend their own listings. Each phone book would have a pre-paid return postcard to supply your extra details and preferences. One part would be to capture presence data and other channels to the user — their Skype, MSN or Yahoo IDs, for instance. This is important data to merchants wishing to return calls to users. For a company like BT, merchants should also be able to send voicemails directly into your voicemail inbox without disturbing you.

No doubt there are other, possibly better, optimisations to the business model. The market may only mature slowly and not all will be cost-effective right now. But collectively, the need to engage in presence, transaction, identity, privacy and other business model extensions is imperative if the phone book business isn’t to pass away with its aging users.

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Strategy & Metrics for Telco 2.0

I thought I had better complete the loop on Telco 2.0 metrics by looking at how they need to be used to help develop and appraise strategic decision-making. This is an area we at STL have given a lot of thought to recently in our Telco 2.0 report. These metrics are a critical precursor of the Investment, Operational and Financial KPI’s I alluded to in a previous post because they set the context for the strategy and investment (and subsequently operational and financial) KPI’s that a company develops.

The metrics I am talking about here are those that are used to both help develop AND appraise strategy within telco’s. As such, they look to measure a company relative to its market environment and have a strong external emphasis.

At STL, we have adapted the classic strategy framework of Market Attractiveness vs Competitive position to the Telco 2.0 world and developed a Telco IP Situation and Strategy Analysis Tool™ which helps companies:

  1. Monitor the market in which they operate - how fast is the market moving to a Telco 2.0 world;
  2. Assess their position within it - how are they doing relative to traditional and new/future competitors, and
  3. Develop a strategy for future success - what is their vision, strategy and roadmap going forward.

The chart below gives a simple explanation of the tool.

http://www.telco2.net/blog/images/Strategy_Tool-thumb.jpgClick to see full image.

If we now look at the framework for our Telco 2.0 metrics we have 5 KPI ‘buckets’ that provide and end-to-end view of Telco metrics:

http://www.telco2.net/blog/images/Metrics_Framework-thumb.jpg Click to see full image.

We are constantly developing this framework and will be discussing this with a number of companies in break-out sessions at the 2006 industry brainstorm. We believe that such an end-to-end framework is extremely valuable to the TMT community - I certainly would have found it so during my time working in strategy in fixed and mobile operators like MCI Europe and Orange. However, feedback and input from our Telco guru readership remains critical - please do post comments or email me directly.

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July 28, 2006

Telco 2.0 Brainstorm - Speakers Update

Delighted to hear from BT that they are making either their CEO of Retail or CEO of Wholesale available to speak at the brainstorm.

In addition, we also have Rainer Deutschland, VP Strategy Development at Deutsche Telekom; Ken Ducatel, Cabinet Member at the European Commission (part of Vivien Reding’s team); and John Watlington from France Telecom, who’s been working with the MIT Comms Futures Prog on the Broadband Incentive problem (ie. problems of making money out of providing b’band when usage skyrockets, as per Korean example).

On the subject of Korea, we’re delighted to have 3G expert Tomi Ahonen as ‘analyst-in-residence’ at the Broadband Connectivity breakout on Day Two of the event. He’s in the middle of a book called ‘Digital Korea’. He’ll be helping the brainstormers work out what those in the West can learn from what’s going on there.

We’ll be interviewing and briefing these gentlemen along with all the other stimulus speakers over the next month, and will make some posts in advance of the event.

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More on Telco 2.0 Metrics

Having got back from hols on Monday, I have been musing about Telco metrics and KPI’s in light of the great postings in the blogosphere that we referred to yesterday.

The more I think about this, the more it is clear there are 3 types of metrics:

  1. Investment
  2. Operational
  3. Financial

Investment metrics are the early warning signals that ensure the company is aligning execution with strategy and investing in the right areas. These are the long-term leading indicators of where an operator is seeking to position itself in 3-5 years time (and how well an operator might perform then). An example of this might be investment in NGN technologies that support the stated strategy - e.g. in 21CN in BT’s case which supports its move to being an ‘open platform’ IP company.

Operational KPI’s are the immediate lead indicators for the financial ones. In today’s current world, Subscribers (especially active ones) are used as a lead indicator for revenue growth (rationale being that if you add incremental subs this quarter you will see increased revenue in subsequent ones). ARPU falls somewhere between an operational and financial metric because, although higher ARPU should equate to higher overall revenue (therefore financial measure), it can also be manipulated by promotions, discounts etc. and therefore is an operational tool.

True Financial measures reflect the financial performance of the company - cashflow, ROI etc. These are the backward looking measures that tell you how well the company has performed over the preceding financial period.

I think the long- and short-term leading-indicator Investment and Operational measures are the interesting ones for (a) management and (b) the investment community seeking to see if companies are on the right track in an industry that is in the throes of disruptive change.

There are 2 separate issues relating to current Operational & Financial metrics (I haven’t really thought through the issues with Investment ones yet):

  1. They are inconsistently applied or “fudged” as Dean Bubley neatly puts it.
  2. They are the wrong measures for the future Telco 2.0 world. This has been been much less widely considered by analysts and the blogosphere. Martin (Geddes) who is a co-writer on the Telco 2.0 blog is, to my knowledge, the only person who has really alluded to in a post on Telepocalypse a couple of months ago and he raises lots of ideas about future metrics in his recent post on PSTN 2.0.

We want to explore this second point over the next few months:

For example, below is a chart showing the typical current Financial and Operational measures for a Mobile Operator. Analysts (and senior management) measure the financial health of the company using the Key KPI’s (a mix of Operational and Financial) and managers use the Operational KPI’s to manage the business (and are themselves evaluated using these measures).

http://www.telco2.net/blog/images/Current_Metrics-thumb.jpg
Click to see full image.

But are these the right measures?

Revenue mix is changing for operators - there is a move away from voice and application revenues to new sources of revenue (from advertisers, third-party application providers etc.). Remember BT, for example, now only makes 10% of its revenue from voice. This makes subscriber numbers and ARPU numbers less relevant. For example, if you make money from sources upstream, like Google, then number of users/subs and revenue per user/sub does not directly influence total revenue. Also, in a world where users can move around from service provider to service provider AND potentially have relationships with several service providers, sub numbers and churn are also less important.

Future Investment and Operational metrics need to reflect these business model changes, tie in closely with future value sources for a Telco (ie be aligned with the strategy) AND be lead indicators for financial health. So, for example, if a Telco has the vision of being an open platform upon which developers create lots of exciting apps and services, an Investment KPI might be Spend on Open Source NGN Service Platform and an Operational KPI might be Number of Open API’s offered or API Usage by Third-Party Developers.

Over to You
This is not easy to think through (well not for me anyway). We would love to get your input on the Investment, Operational (and Financial) measures that companies and analysts should be using in the Telco 2.0 world. We will continue beavering away on this and, with your help, will look to publish an indicative list of measures (with explanations) in early autumn. Get your thinking caps on!

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July 27, 2006

Interview: Iain Johnstone, Zen Internet — “Superior customer service”

Internet Protocol is specifically designed to abstract away as much as possible of the underlying transport infrastructure. Thus if you’re in the business of retailing connectivity, you have to find some means of differentiating yourself in addition to the technical aspects of the product. Zen Internet is a medium-sized UK ISP that was conceived around a strategy of superior customer service. They sell into both the residential and business markets. Their success in executing this service strategy is evidenced by the many industry awards that Zen has received, as well as its commercial success.

We interviewed Iain Johnstone, who is Sales and Partner Program Manager. Given the price wars in the UK broadband market, we wanted to know more about what Zen do differently that enables them to maintain margins and profitability.

This is an edited version of the conversation, and is not a verbatim transcript. As always, we have no commercial interest in the companies we highlight unless disclosed - although one of the Telco 2.0 team is a satisfied Zen domestic customer.

Who are your customers?

We aim to be the #1 ISP for business users. We aren’t in competition with the AOL/Time Warners of the world.

What does Zen do differently to create “superior service”?

Firstly, we recruit differently. Our customer have access to the best-qualified technical support. Most are degree-qualified, and all have an interest in the Internet. Many have run their own business. They relish finding answers to customer problems. We have a stringent recruitment process.

All our service agents are UK-based. They understand the accent, dialect and culture of the caller (and vice-versa), and thus understand the problem being described.

We use an 0845 number, not an 0870 number. [Note to non-UK readers - 0870 numbers, used by most industry players, are around US$0.15/minute to call; 0845 numbers half that; normal geographic landline numbers are too cheap to care about cost.]

When someone calls into us, we don’t use the standard call centre metrics to drive our business. The person who takes the call is responsible for that customer issue, and deals with the problem from start to finish, however long it takes. We do monitor call times, but don’t use them to drive agent behaviour.

We also offer to call users back, as well as having a support channel via instant messaging, which has proven surprisingly popular.

We answer all calls within 90 seconds, with 90% answered within 15 seconds. We will divert resources within the business or recruit additional staff to maintain these standards.

How do you market your product differently?

Our business is based on referral. We aim to be the #1 choice of IT managers. That means the referrer must have total confidence in our service. Customers contact us because they have already heard that we offer good service. [Telco 2.0: This obviously reduces marketing costs, increasing profit in a virtuous circle.]

Many customers come to us having had poor service with another ISP. A large proportion of our business is therefore migrations.

Some customers find us through services like adslguide.org.uk, where again we score highly on customer service.

Our success at winning service awards from the ISP Association also reinforces this message.

We do promote referral activity to existing customers.

Overall, we have a very small marketing budget - just a PR and communications team, which is in-house to ensure best results. We are good at copywriting, and as a result customers tend to read what we send them.

What about customer communications?

We have a unique “Rod’s Newsletter” that goes out containing interesting links from the Web, and nothing else. [Telco 2.0: It keeps Zen in the minds of users, as a kind of permission marketing technique that offers value in return for attention.] This raises awareness. We do no traditional explicit marketing.

We have a partner program, with more traditional sales messages, as well as a business letter to out top 200 customers on a quarterly basis. The theme is always “What are we doing to keep you happy?”.

How do you sell your product differently?

We don’t sell broadband - we sell service. The price increase needed to support this is small in the eyes of our customers, for whom broadband is an essential part of their business. We are rarely cheapest, but instead aim to be best value. That means it’s OK for our sales team to lose a deal on price - but never on service.

We never sell the customer something they don’t need.

What’s different about your corporate culture?

Since founding in 1995, we’ve always had the same consistent approach. We are an independent company still owner by its one founder.

How do you go about product development differently?

We actively build in sales and support processes before deployment. Product management won’t launch a product until all the tech support staff are trained. This means we can be weeks or months “late” to market, but this isn’t an issue to us.

How are you positioned compared to your direct competition?

Our competitors are good companies, also aiming to deliver good service. They have technical expertise and network differentiators. Some aim to max out their network, whereas we treat ours as being fully utilised at lower usage levels.

What’s the bottom line from all this effort and differentiation?

We have annual churn of under 10% in an industry where 30%+ is common.

Is the current rush of “Free (but read the small print)” broadband offers to residential users hurting?

Not really. We are developing a VoIP platform [to enter the same n-play space], but are significantly differentiated. No small print, straight pricing. Customers are increasingly coming to us with multiple needs, such as home workers. Zen was born in the shadow of Freeserve, at a time when the dial-up market was going through the same transition, so we’ve been here before.

What are the limits to growth of your business?

Many customer use sites like uswitch to compare prices, only to be later let down on poor customer service, so we don’t see any imminent limits to our “service” message. We want to grow from a £25m business in 2006 to £100m by 2010.

Markets are getting more sophisticated. Users need a wireless router, own 3 PCs. Good ISP employees crave staying at the forefront of technology.

What are the wider issues facing the ISP industry today?

I still don’t know what BT’s 21st Century Network will give me to sell.

There’s a lot of information and content on the Internet, such as World Cup football from the BBC, that is bandwidth-hungry. There is a cost to providing this which decreases margins. We need to have closer relationships with content providers, as we don’t want to have to throttle football to maintain our 9am-5pm business SLA. There’s also a sales opportunity here to host that content nearer the user.

“Convergence” is late arriving, and we’re still waiting for things to happen in that space.

There’s a big issue around security. Who is responsible for spam? How should sharing of wireless access points be governed?

Our thanks to Iain Johnstone and Zen Internet for taking the time to share their strategy with Telco 2.0 readers.

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July 25, 2006

Vodafone KPI’s and Telco 2.0 metrics

The Telco 2.0 team were on holiday when Vodafone announced its latest set of KPIs, so we’ve missed our chance to be first to comment (in depth).

Here are the best analyses, which (as normal) are on the blogosphere from James Enck, Telebullis and Dean Bubley

We’ll be looking at ‘New Telco 2.0 Metrics’ further over the summer and releasing some new ideas at the Telco 2.0 brainstorm, where both James and Dean are also speaking.

More on this to follow…

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July 20, 2006

Investment criteria to fight Internet players

The Associated Press reports:

Online Age Verification May Prove Complex

At MySpace.com and many other popular online hangouts, a 30-something woman can celebrate her Sweet 16 over and over with just a click of the mouse. A 12-year-old can quickly mature to meet the sites’ minimum age requirements, generally 14, while an adult looking to chat with teens can virtually shed several years.

It’s no secret that many of the Internet companies struggle to contain fraud and misuse of services. This story highlights three things important to developing a Telco 2.0 business.

Firstly, user identity is a critical component. There is a wealth of literature on the subject of self-issued and conferred identifiers. Readers interested in the details should make themselves familiar with the Laws of Identity created by Microsoft identity guru Kim Cameron. What matters in terms of dollars and cents is:

  • What do we know about this customer that they might find difficult to express themselves? An example might be the nature of their social network, culled from call detail records.
  • What data has the customer given us that, even if it turns out to be false, is at least valid in the sense of being entered correctly and makes sense (no “30th February” birth dates)?
  • What do we know about this customer that can be proven to be true to some degree? Think: credit checks, copper cables into their premises validating their address, email addresses that have been clicked on.

Services which employ stronger forms of identity are harder for Internet players to replicate. When a customer engages in an operator-provided service, they are effectively putting some identity collateral at risk: get your device or service terminated, or even in the worst case go to court or jail.

Just ask eBay or Verisign if you want to know how profitable building a strong identity business can be. “This person is a child” or “this person is an adult” are simple to state, but expensive to verify.

Today, operators have trouble husbanding these assets. Internal revenue protection needs ensure a reasonably high degree of data quality, but active management is often weak.

Secondly, operators have suites of assets for collecting and managing these identity assets. Call centres, ATMs outlets, retail stores, partners, and so on. A father can come into a store to provision a service for his children and proffer identity of his and their age. For MySpace.com, that’s a serious competitive challenge if you can make your environment safer and more trustworthy. Nothing will be entirely safe — adults will use phones provisioned to children — but there’s clearly a comparative advantage.

Finally, the criteria needed for product and project go-ahead need to reflect the new reality. Voice and messaging revenues are still fat and happy, but the amount of attention and traffic given to Internet-based alternatives grows all the time. Every project and product needs to be scored against its “Internet sustainability”, using criteria such as “Does this product leverage our advantage in valid and verifiable customer identity assets?”.

Where products are lacking, they need to be reinforced. For example, accumulating data about customer behaviour that in turn improves service helps to reduce churn. If you throw the data away, you can’t go back and get it. When someone dials for directory assistance, don’t just send them an SMS; offer to add the address to their network address book. Allow them to easily keep, browse and search their full message and call history. And so on.

Rather than asking “how much cash can we subtract from the user by identifying the value of the bits flowing through the pipe”, the real question is “how much value can we add to the traffic on our network from our non-network assets?”

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July 18, 2006

Should we build PSTN 2.0?

The Telco 2.0 team have been enjoying some much-deserved vacation time. One of the side-effects is it gives you intellectual space to ponder some of the big issues.

Our industry survey told us that defining the services that IMS is due to support is a big issue. We also know that traditional voice service dominates industry revenue. Unlike Internet-based competitors, this voice service offers ubiquitous availability (every device supports it), universal interoperability (“direct dial” isn’t even in the vocuabulary any more, it’s assumed), and sophisticated pricing and payment options.

What happens when you put IMS and voice services to together? What’s the evolution path? Is IMS only good for cost elimination of legacy circuit-switched gear? Or should IMS really be the bedrock of PSTN 2.0?

After all, the GSM Association has plans to keep the messaging money tap open by evolving SMS into mobile IM. Could the telecom industry out-distribute the Internet players in new voice services? Can “phone companies” extract enough value from their billing, identity, distribution, support and retail assets to overcome the inevitible functionality gap with nimbler Internet players?

Undoubtedly the challenge is steep, sufficiently so that many would hesitate to even ask the important questions:

  • Do the features of advanced telephony require common standards, or are most compelling features ones that each operator could deploy independently?
  • What would PSTN 2.0 look like if it came to pass?
  • How in practise could it be brought to life?
  • What are the competitive challenges and technical problems with it?
  • What alternatives are there to maintain revenue from voice telephony?

So, let’s lie back in the sand, plug in our headphones, move our sunhat over our face, and contemplate each of these.

As if by magic, my voice whispers in your ear from across the world

If I’m going to talk to you, we need to have a common means of doing so. The constraints of SS7 gave us a pretty uniform experience in POTS. Internet protocol creates a new neutral interface for underlying connectivity. SIP (despite some standards fragmentation and design problems) provides a common signalling mechanism, and likewise there’s no shortage of standard media codecs.

Yet, to create an application we need a common meaning overlayed on top of that SIP infrastructure. This is both a technical and social issue. To have the option of depositing a message directly in your voicemail inbox without your phone ringing, we need to agree the API.

I also need to know what your social expectation is. In today’s telephony, if I call your mobile number, it’s not my embarassment it wakes you at 3am in your hotel room whilst roaming on the other across the world. Add in explicit time zone support as an ‘availability’ feature, and it does become my concern. If you assume I ignored that information, when in fact I didn’t have access to it, we’ve got a problem. Without a common social framework, the application may break even if technically flawless. This implies a common underlying meaning (“semantics”) to the application, identities, service capabilities etc. with relatively small operator-specific enhancements that don’t disturb that.

So that answer to the question of “Do we need a new common application standard?” is “Yes!”. Features will cross operator/application network boundaries, necessitating common technical standards; and a common set of features is required to make the system socially scale. (I’ve also not mentioned resisting voice spam, which also demands no leaks and common defenses.)

The question is who gets to do it, and what’s the business model given the ultimately inevitible demise of the metered minute?

Features, features, everywhere

Before we get to the business model, let’s just look at what people actually do with existing IM/voice clients such as Yahoo! Messenger and Skype that they can’t typically do with a cell phone or landline:

  • Ability to send multiple media types (audio, text, emoticons, URLs, pictures, video, files) as part of a single conversation.
  • Presence, availability and “meta-presence” (e.g. additional mood text as well as “Available”).
  • High levels of privacy and access control via buddy lists, multiple identifiers and opaque directory data only visible to approved receivers.
  • Integrated directory, history and search of users and past communications.
  • Extension across multiple device types.
  • Always free on-net usage (that’s “free” without an asterisk).

They sometimes offer integration with voicemail or message storage systems, although the functionality and integration tends to be weak and may come at a price. Communications may also be encrypted, although this is not universal.

This list gives us the baseline functionality: this is table stakes. Yes, even free on-net calling between consumers once they’ve paid for the underlying connectivity — remember, we’ve already said last rites for the metered minute.

Yet this list tends to address the strengths of the IM players (i.e. PC software development) whilst ignoring those of telcos: payment, universal access (including businesses), advanced management, distribution and support, high quality, and strong identity (SIM cards, credit checks, or simply knowing where you live and who you are). Most notably, current IM systems fail to cross boundaries between consumers and businesses, as well as performing poorly at scaling to mass, open public use in the way the PSTN has (this requiring pre-approval as a “buddy” of potentially hundreds of people).

Thus we should expect additional features from a PSTN 2.0:

  • Explicit negotiation of any charges between sender and recipient of any media type, including voice calls.
  • Ability to bundle connectivity for free (“next-gen 800 numbers”) for all types of media.
  • Acceptance of multiple types of identity, not just phone numbers, and to behave appropriately in each case.
  • Strong forms of privacy to protect users from intrusion by businesses with whom they interact.
  • Conversely, the ability to reveal a great deal more identity information via digital means to businesses or other users. No more dictating names and addresses to bored Indian call-centre operators.
  • Integration of payment systems for completion of transactions with businesses.
  • Integration of all forms of device and personal identity into the communication. This offers stronger privacy protection and blurs the difference between a buddy and a general contact or address book entry.
  • Higher and more predictable service quality.
  • Stronger audit and encryption for commercial use.
  • Better integration with other identity sources (e.g. enterprise directories) as well as fine-grained role-based management of all these relationships.
  • Radically better voicemail and messaging, given the comparative advantage here to IM systems.

The roadmap for the telco telephony system thus diverges significantly from most of the Internet players. Adverts, auctions, entertainment content and operating systems take a second place to simple communication that scales beyond circles of friends to all public spheres. Some revenue may come from select premium features, such as centralised storage, or aggregation of capacity to enable conference calling. The big bucks come from from bridging the islands of consumers and businesses, as well as lowering the barriers to safe conversation between strangers.

A hard journey with many dangers where most get lost and perish

The soothing waves sloshing up the beach have lulled us into a dream state that allows us to imagine what the destination might look like. Is there any viable route from “here” to “there”?

This is where things start to unravel. Your correspondent naturally took a plane to the seaside, and discovered a few things along the way. Sending text messages whilst roaming sometimes simply doesn’t work: Message send failed. (You still get charged.) The “+” international prefix for making voice calls doesn’t work everywhere as it should; dial “00” as the prefix from your mobile phone, and the call goes through.

If the industry can’t get vanilla voice and messaging to work properly (let alone reliable interoperable MMS), what chance is there of executing on such a grand plan? And how likely is the target functionality going to fit the real needs of users (again, shades of WAP, MMS, and unused portals)? Services designed by committee don’t have a good track record of market traction.

The rapid iteration and permanent “beta” status of Web 2.0 applications is an outcome of Darwinian commercial evolution: anyone with a heavyweight approach to discovering real user needs went out of business in Web 1.0. Few telcos are likely to acquire such competence; and a mass outbreak of excellence at application design and implementation is even less likely.

Thus the Telco 2.0 suspicion is that operators have only weak competence at the content and applications space. Timescales for deployment are glacial — and like the glaciers, such efforts are prone to melt and disappear before their time. It is necessary to specialise in the horizontal functions you do well. That means realising some of the same commercial goals of liberating value from payment, billing, identity, etc., — but without the baggage of application and hardware design that defining a full service entails.

So, how do we get the feature list and revenue, but without betting everything on one particular application architecture?

Collaboration, collusion or cartel?

We already have the capability to replicate POTS using SIP and ENUM. However, the definition of advanced features is almost totally absent. Rather than invent a new application called “PSTN 2.0”, it may be necessary to take a more nuanced approach. To see why, you need to understand the competition.

There are thus two ways in which common technical and social understanding of a communications system can come about. A group of telcos and vendors get together to create a new public standard, or a private entity grows to become such a de-facto standard. An analogy might be with payments: “Cash 1.0” was based on analogue paper and only required you, a government (the public standard issuer) and the merchant with no interlocutor. “Cash 2.0” is digital and tends to be mediated by a private payment network such as VISA.

Ideally, telcos would like that private entity to be themselves, collectively — just like VISA and the banks.

Ultimately, the telecoms operators are competing against a number of other players: the Internet giants, media companies moving into social media and communications, and transactional players such as those same banks as well as Ebay/Paypal/Skype. We suspect the industry is going to polarise as a number of associations based around different scarce resources: telcos and their licensed spectrum; commerce hubs (Google, Ebay) which introduce buyers and sellers; Microsoft, as a 3-way network effect between users, software/interactive content developers, and OEMs; and media players like Yahoo! and BSkyB/News International. Whilst the telcos think they’re competing against each other, others plot to snatch away the pie before the winner is chosen.

So if the network operators might struggle to define new application standards, they instead need to ensure they win regardless of the power struggles between the above axes of power. That means adopting a platform play around the assets the others lack. This is a much richer idea than just technical APIs, and broader than IMS. It means defining means of access to billing, distribution, logistics and support systems — in other words, the whole business, not just the network.

Perhaps the best current example is SMS short codes. These are a very simple instance, but you can easily imagine a common platform for creating and managing these; standard means of short code business customers interfacing with the telco CRM and support systems; common interfaces to manage payments and refunds, and so on. A business platform, not (as with IMS) just a technology platform. The seed is there; it just needs watering and fertilser to grow.

The network operators will have to work together to protect their turf. This, luckily, is something they are more than accustomed to doing. It will require some careful positioning with the regulators, however, for them to see that genuine inter-system competition is emerging, and that real public benefit is being generated. Moving from technical standards to common business standards carries political risk.

Fight for your right to profit

The “phone companies”, for want of a better term, are at risk of carrying all the costs of the physical infrastructure (network and distribution) and messy credit and fraud management, whilst receiving few of the spoils. The traditional telephony system will slowly erode, as new forms of communication that are more convenient to their context encroach, and people with powerful hubs external to the industry use their leverage to the maximum.

At the moment, the telephony industry isn’t even in the ring to put up a fight, having lost its confidence following a half-decade of doldrums and decline. The worst-case outcome a decade hence is that Skype takes the 800 number business through integration with Ebay and Paypal, Yahoo the premium call revenue by extending other premium content businesses, some unheard-of upstart the consumer-to-consumer calls (“MySpace/MyTalk”?), and Microsoft/Nortel federate every business communications server. Many other combinations are plausible — pick your own bogeymen. In each case, the telco outcome is bleak.

The escape route is a “Telco Industry Inside” platform approach that ensures consistency and interoperability, low cost of development to business users, and an unaccustomed openness. The outcome may not be called PSTN 2.0, but a Telco 2.0 platform and connectivity business will most certainly lurk underneath.

Sunny days beckon if the right moves are made, even if immediate retirement to a beachside property remains a distant prospect.

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July 17, 2006

Guest post: Nick Hutton, Backchannel - telco yield management

We recently met with Nick Hutton, CTO & Founder of BackChannel, a unique intelligence service on commercial buyers of telecom services. In a nutshell, they crawl public networks and perform traffic and routing analysis to see who is connected to whom, and thus who is buying what. We were fascinated by how they enable a more intelligent approach to acquiring and retaining customers. As such it represents a good example of how to go about creating a Telco 2.0 connectivity business. You get an opportunity to differentiate yourself on how the back office is run, rather than the product per se.

For the record, we at Telco 2.0 have no commercial interest in BackChannel.

Following the airlines, but a quarter-century behind

Telecommunications service providers are facing a number of significant challenges.

  • Competition from traditional and non-traditional sources is increasing.
  • Churn has risen sharply in both PSTN and now IP services.
  • Long term debt, raised in the 1990’s, is coming due.

Service providers are experiencing similar economic difficulties to those faced by carriers of the airline industry in the 1980’s. Namely, an inability to generate promised economic profit from a fixed asset, paid for with long-term debt. In the case of the airlines that asset was their aircraft fleet; for telcos it’s their network.

These challenges conspire to drive down shareholder value, shorten the careers of chief executives, and starve these companies of the capital they will need to deliver the next generation of network services. Their environment has changed.

Those airlines who minimised the empty seats flown, and maximised the economic profit from every passenger carried, became the sole survivors of the industry. They did so by the application of Yield Management (YM). YM attempts to answer the question “Given our operating constraints, what is the best mix of products and/or services for us to produce and sell in the period, to generate the greatest economic profit?”

With seemingly many similarities between the economics of the two industries, YM sounds like plausible way for maximising revenue from existing products, services, and infrastructure for telcos under pressure.

Not as easy as it looks

As is often is the case, the devil is in the detail. Straight application of airline-style YM practices have not been successful for telcos.

  • Aggressive overbooking results in significant customer dissatisfaction when their traffic is congested or dropped. How would you feel about getting half your gas pressure when you are cooking? Customers expect their telecoms to perform like a utility.
  • Prioritisation leads to resentment, particularly from long-standing customers who feel their service has been degraded for the benefit of newly signed “premium” customers. Particularly when the long-standing customer may be paying a higher price than the “premium” customer due to continuing price decline year on year. To paraphrase a TV advertising campaign for a major UK lender, “Sorry, premium customers only!”.
  • On-peak and off-peak pricing is familiar to most voice customers, but its practice has steadily declined in recent years and there seems to be little acceptance of that model for IP-based products and services, which are the industry’s future.
  • We are still waiting for the “space-filling” services that can be used to monetise otherwise empty bandwidth at a low priority. This is the network equivalent of the £1 flight deal where you take your chances with being bumped onto the next aircraft.

This is why YM has yet to work its magic on the telecoms industry.

Given undeniable benefits of YM and the obvious similarities between the telecom sector and many other sectors using it, we ask the burning question:

How can we bring this discipline to our industry in a way that generates higher returns for operators and their shareholders?

Our answer: create a custom market intelligence approach for telecom

At its core, YM is about finding the most profitable new customers for your services, and converting less profitable accounts into profitable ones by service them through lower cost channels or up-selling them value-added services with better margins. This is the financial services industry view of YM, where they think of their customer-base like a portfolio of stocks, some of which are star-performers and some of which need to be carefully managed into performing better. Some customers are never going to perform, and should be offloaded on the market before they destroy too much shareholder value.

BackChannel is developing software that enables IP Telecommunications Service Providers to do Yield Management. BackChannel’s software knows:

  • Which corporate customers are buying which IP products from which providers?
  • How much are they buying (bandwidth size, number of hosted servers, sites)?
  • How likely are they to churn to your particular service?
  • How likely are they to stay with your service over the long term?
  • Which are a natural fit for your service, because they can be served at a competitive cost to you without eroding margin?

By using this information it is possible to target your sales and marketing activities on only the most profitable customers, thereby increasing overall yield of your network resources and your reps.

This enabling technology allows IP carriers to employ a conservative, proven, and disciplined approach to increasing sales force efficiency in a way that already produces extraordinary returns for transportation, financial services, and hospitality industries worldwide.

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July 7, 2006

Speakers confirmed for Telco 2.0 Industry Brainstorm

I’m delighted to announce a latest list of confirmed stimulus presenters for the Telco 2.0 Industry Brainstorm on 4-5 Oct. We are finalising a few others right now, then briefing the speakers and preparing the brainstorming processes over the summer.

Telco 2.0 Industry Brainstorm - confirmed stimulus presenters (at 7/7/06):

  • James Enck, Chief Telecoms Analyst, Daiwa Securities
  • Group Chief, BT (final name tbc)
  • Kennet Radne, Senior Vice President, Products & Services, TeliaSonera
  • Ole Obermann, VP, European Digital Business Development, Sony BMG Music Entertainment
  • Jim Holden, Director of Global Wireless Partnerships, Google
  • Alessandro Petazzi, Director, IPTV Marketing & Content, Fast Web
  • Craig Forman, EVP and President VAS, Earthlink
  • Norman Lewis, Director of Technology Research, Wanadoo
  • Ignacio Tome Vilanova, Head of Entertainment, Telefonica Moviles Espana
  • Falk von Bornstaedt, Vice President, IP & Carrier Solutions, Deutsche Telekom AG
    • Judy Gibbons, Venture Partner, Accel Partners; Non-Exec Director, O2
  • Patrick Parodi, Chairman, Mobile Entertainment Forum
  • Stuart Collingwood, Vice President Europe, SlingMedia
  • Berit Svendsen, Executive Vice President, Technology and CTO, Telenor
  • Jonathan Jowitt, Head of Enhanced Multimedia Development, Orange
  • Harman Wagter, Managing Director, Amsterdam FTTH initiative (CityNet)
  • Alan Duric, CTO, Telio
  • Tomi Ahonen, Author, 3G expert
  • Matteo Gatta, Group Strategy Director, Belgacom
  • John Riordan, Head of New Product Development, Swisscom
  • Rory Sutherland, Vice Chairman & Creative Director, Oglivy One Worldwide

IMS Services Industry Brainstorm (co-located with Telco2.0) - stimulus presenters (at 7/7/06):

  • Luis Angel Galindo Sanchez, Senior Technology Expert, Telefonica
  • Pascal Correc, Chief Architect, SFR
  • Ian Pannell, Senior Manager - Global Service Platform, Vodafone Group
  • Roberto Gavazzi, Client Area Manager, Telecom Italia
  • Ferruccio Antonelli, Director, Services Layer Engineering, Telecom Italia
  • Antti Pelinnen, VP Business Development, Telia Sonera
  • Wooyong Choi, IMS Development Manager, SK Telecom
  • Christophe Gourraud, Lead Technical Architect, Swisscom Mobile
  • Dean Bubley, MD, Disruptive Analysis
  • Roger Ward, President, MultiServiceForum
  • Kenn Walters, Director, STL; ex-CEO, O2 Germany
  • Stefan Holtel, Service Creation Mastermind, Vodafone Group
  • Colin Pons, Senior Architect, WSO Innovation Management, KPN (awating final confirm)
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July 5, 2006

Worse quality, more profit?

Following on from our paradoxical suggestion of free products generate more profit, we can see another potential lesson from outside of telecom on price discrimination based on quality.

According to the combined distribution and ediorial forces of The Register and The Guardian

Universal Music Group is to bring no-frills CDs to the UK in a bid to match the iTunes Music Store’s price point. The scheme targets old, back-catalogue releases rather than new or recent titles. […] Universal will split its CD line-up into three formats. The cheapest series is expected to retail for just under £7. The CDs will ship in a simple card slip cover with no booklet. […] The other two are the standard jewel-case package and a double-pack which bundles as DVD with the CD.

Traditionally VoIP has offered somewhat variable quality over best-effort networks. The alternative is substantial investment to implement QoS and network-based session management. But what if we took a differenet view, and saw such quality issues as a price discrimination virtue, not a technology vice?

In this case we have an opportunity to give away the low-end product to entice customers in for the up-sell to the premium experience, or to cross-sell calls to those that offer higher revenue potential?

Are you missing opportunities to promote access to non-geographic, premium, personal numbering service, freephone or international destinations? How could you re-invent your pricing to encourage users to feel more comforable paying significant roaming or Wi-Fi fees as part of a bigger apparent bundle of value? What sub-prime services could you offer to gain the user’s attention and affection? How does the need to price discriminate affect your IP services vision? Is delivering maximum quality in all circumstances really the right approach?

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Great reading on business model change

If you’re suffering from the heat in the office and are looking for some telco-related reading material to take down to the lake or beach, we can recommend the following two articles go straight to your printer.

John Hagel revisits his 1999 Harvard Business Review article on “Unbundling the Corporation” at his blog, Edge Perspectives. (If you didn’t know before that it makes sense to read blogs, you do now.) Some choice quotes:

Like the stock buybacks that I discussed in an earlier posting, these initiatives may reflect a more serious shortcoming: an institutional inability to internally generate profitable sources of growth. In fact, these initiatives may significantly distract executive (and investor) attention from the pressing need to restructure enterprises to create sustainable growth platforms.

When you compare R&D expenses of telcos against Internet players, they look very paltry; yet we’re assured that IMS will be deployed to deliver advanced integrated services for which the operators themselves (as opposed to brand or technology partners) will capture significant revenue. What gives? He continues…

In a nutshell, the article argued that most enterprises today are an unnatural bundle of three very different kinds of businesses - infrastructure management businesses, product innovation and commercialization businesses and customer relationship businesses. By trying to manage the inherently conflicting demands of these three businesses within a single enterprise, executives undermine the potential for profitable growth.

This completely aligns with our message here at Telco 2.0 and our manifesto, where we describe the likely layered model we believe the industry is going to be forced to adopt over time.

In a somewhat self-referential circle, TelecomVistas describes in some detail what that unbundling might look like, giving Nokia as an example of a master player of the game of anticipating industry modularisation. The same article glowingly refers back to our manifesto, which if you haven’t read it yet probably means you’ve just earned yourself another printout and 30 extra minutes down by the poolside.

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July 4, 2006

Are your values getting in the way of profit?

We have previously written about how retailer Tesco squeezes premium margins out of a humble sponge cake, and the potential lessons for telcos. We suggested that operators “draw inspiration from outside the industry, and benchmarking against best practice”.

One such success story is Ryanair, the discount airline. There are three important lessons to take away from their business.

The first is that they baked-in a completely different set of values amongst their workforce. Many of their actions would have been heresy to a traditional airline operator: removing pre-allocated seats, breaking down labour divisions, placing adverts on seat backs, charging for using credit cards, and so on. As an operator, now is the time to ask yourself what are the parallel issues in your business, particularly as an increasing proportion of the industry becomes focused on price.

Secondly, they give away over a quarter of their seats. Yet most telcos won’t launch a new service without a revenue model, and will always attempt to charge for all traffic (if only as part of a metered bundle creating breakage or overage). Like a telco, the airline business is largely about squeezing revenue out of a fixed-cost asset base. Consider what would happen if data charges were waived to a selection of innovative new applications. How much faster would the mobile ecosystem grow?

You could imagine this being taken further. It’s a challenge to get people to switch operators, so why not make it easy to “try before you buy”? Offer targeted SIMs to students, housewives, etc., and include unlimited free off-peak calls, no contract required. (Feel uncomfortable? Why?) Once they start to get used to putting your SIM into their handset, you’ve got a chance to SMS them each time with an offer to pre-pay for peak minutes, or adopt a post-paid plan that fits the calling patterns you’ve observed. A customer relationship can precede a billing relationship.

Again, your values may stand between you and profit.

Finally, consider what would happen if Ryanair solely used ARPU as its guiding metric. Their “ARPU” is one of the worst in their industry, yet they have among the highest margins and stock valuations. A rational ARPU-driven decision would be to eliminate that marginal last free ticket. This would clearly be wrong for Ryanair. They need subtler metrics — “ARPU per business passenger booked within 7 days of departure”, or “Concession revenue per free ticket”.

Your best call might be simply to give your product away. After all, it won’t cost you anything but your values.

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The Stifling Effect of the Vertically Integrated Operator

The Wall Street Journal has a very interesting article this week by Jason Fry looking at how mobile phones could be used to provide local information to users on a real-time basis. Armed with GPS, a compass and some nifty software from GeoVector, a mobile phone could be pointed at an object and:

  • Show a map of it and its surroundings.
  • Show information about it that is contextually relevant to the user (especially if the user’s preferences are already known.
  • Allow the user to play games in a real-virtual world based on local surroundings.
  • etc, etc.

The possibilities are limited only by the quality of the service provider’s information database (which presumably would be the web + some proprietary providers) and the quality of their CRM system.

Sounds like a dream? Well, it’s available in Japan.

So why not Europe and the US?

The Director of New Media at Geo Vector, Peter Ellenby, blames it on the vertically integrated business model of the operators which prevents applications and services like Geo Vector from being made available on US devices:

“the carriers need to be a lot more creative in how they deal with content and application makers in the U.S., I think, for things to take off over here.”

Now wouldn’t a service like this stimulate more calls…?

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July 3, 2006

Wi-Fi Alliance endorses Telco 2.0 Brainstorm

We’re delighted to announce the Wi-Fi Alliance as an endorsing partner of the Telco 2.0 Industry Brainstorm on 4-5 Oct. Members get some nice discounted rates to the event. Clearly, the Broadband Connectivity session is going to be of major interest…

Here’s an intro:

The Wi-Fi Alliance is a global, non-profit industry association of more than 200 member companies devoted to promoting the growth of wireless Local Area Networks (WLANs). With the aim of enhancing the user experience for mobile wireless devices, the Wi-Fi Alliance’s testing and certification programs ensure the interoperability of WLAN products based on the IEEE 802.11 specification. Since the introduction of the Wi-Fi Alliance’s certification program in March 2000, more than 2,500 products have been designated as Wi-Fi CERTIFIED™, encouraging the expanded use of Wi-Fi products and services across the consumer and enterprise markets.

Wi-Fi®, Wi-Fi Alliance®, Wi-Fi CERTIFIED®, the Wi-Fi CERTIFIED logo, and the Wi-Fi logo are registered trademarks of the Wi-Fi Alliance; and the Wi-Fi Alliance logo is a trademark of the Wi-Fi Alliance.

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Advertisting Funded Content - HYPOTHESES

Futher to the Broadband Connectivity and Voice and Messaging hypotheses, here are the Advertising Funded Content Hypotheses we will be testing at the break-out session on Day 2 of the Telco 2.0 Brainstorming event.
Situation

  • With Voice revenues and margins under pressure, Operators are seeking alternative sources of growth.
  • Content has long been held up as a future source of growth for both fixed and mobile players.
  • To date, the main source of content revenues for Fixed Operators has been when they have moved directly into adjacent markets, such as cable & media services, with little revenue generated over their traditional telephony networks.
  • Similarly, outside Japan and South Korea and excluding SMS, Mobile Operators have had had little success in generating content revenues.
  • Operators are still enthused about the prospects of content distribution revenues with many launching IPTV and Video on Demand services recently.

Complication

  • Structurally, the content distribution market is tough to make money in:
    • There are a small number of powerful content rights companies that currently make less than 2% of revenue via digital channels (therefore telco’s are not important as a channel currently and have little leverage).
    • There is a lack of effective Digital Rights Management (DRM) solutions in the digital channels, making content rights owners reluctant to distribute through them.
    • There are many alternative channels for content, including the internet which is FREE.
    • The TV and Cable companies make as much (or more) money from advertising than they do from content distribution - Pay TV generates less revenue in US than TV advertising.
  • To date, Operators have done little to differentiate their content distribution offerings and have, instead, adopted a me-too approach - e.g 3G TV.

Question (in the mind of the operators)

  1. What content do customers want to receive from us and how do they want it delivered?
  2. Where are the real sources of value in the content distribution market?
  3. What do we (as operators) need to do to exploit these areas of opportunity?

Answer (our suggestion as to the solution)

  1. Customers would like NON-INVASIVE, PERSONALISED and CONTEXTUALLY RELEVANT content which they do not receive effectively at the moment from any channel (c.f. broadcast TV - one-to-many offering).
  2. Customers are also demanding much higher volumes of user-generated (rather than Hollywood-generated) content - c.f. MySpace, CyWorld etc.
  3. To deliver this, operators require best-in-class Customer Relationship Management (CRM) systems that exploit the customer data on preferences and usage that operators hold and combine it with other contextual information (e.g. Location) to provide customers with unique and targeted content.
  4. Operators are skilled in connecting people together and in delivering user-generated content (e.g. SMS). These skills now need to be applied to connect like-minded groups together to exchange content. It is highly likely that customers would be willing to pay for this.
  5. Advertisers are currently an untapped source of revenue for Operators. IF Operators can provide personalised and contextually relevant content, then they are in a position to deliver similarly personalised advertising. For example, on-line advertisers love to have their banner ads placed on User-Generated Content sites like MySpace because they are guaranteed an appropriate audience. For operators to manage this process, there needs to be a method of sharing appropriate customer data (possibly through a Federated Identity model). Such an investment would create a unique distribution channel for advertisers for which they would pay a premium.

Summary: IF content is going to become a key area of growth for the Telco community then Operators will need to take the lead in (a) improving their internal CRM systems and (b) working with advertisers and content owners to develop a data-sharing model which can benefit all.

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

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