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August 30, 2006

The lessons for FMC operators from airphones

Today’s announcement by Ryanair that they plan to enable GSM roaming on their flights provides a useful lesson to carriers thinking of deploying fixed-mobile convergence (FMC) solutions. Historically telephones on aircraft have been a commercial flop. As we will see below, they have failed to satisfy the user need. It is possible most FMC technology has the same problem, but from the opposite direction: attempting to solve every problem at great expense to ensure lock-in, rather than the parts of the puzzle of most value to the user.

Understanding the problems of airphones

Many reasons have been put forward for the failure of in-air phones, such as cost, lack of privacy, and audio quality issues (from background noise). No doubt these are factors, but that doesn’t seem to stop people from talking on trains for the last decade or more. The Telco 2.0 approach is to decompose the value proposition the the user seeks, and then see how well the product satisfies that need. This is a core skill for the new all-IP world. When an industry goes from vertically integrated to horizontal specialism you need to be able to pick the unbundled parts of the value proposition you will specialise in.

In the case of a phone call, the user has to select their contactee from an address book; dial; and persuade the contactee to answer (is the caller ID someone I want to talk to)? Should the callee not answer, then there needs to be a means of leaving a forwarding identity (call me back at…). That means knowing your identity/number, and having the technical means to take an inbound call. Even if the call connects, there may be a need for the callee to call the caller back to complete the user’s objective. This may need to occur after the flight has completed — and the callee may not be aware of when you dip below the magical 10,000 feet and all powered electronic items suddenly turn into verboten objects of subversion.

Simply being able to place an outbound call only filled a small part of the user need. The number you need to dial is likely to be stored in the address book or call log of your phone, which naturally you’ve buried deep in your bag in the overhead locker, which you can’t access from your window seat, and aren’t allowed to turn on even if you can get it Even worse, the callee’s number may be locked up in your operator voicemail box as a caller ID or dictated message, necessitating even more expensive air-to-ground calls. Even that assumes the user can remember the way you access your voicemail from handsets other than your own SIM-enabled one.

And that’s just the beginning of the user’s problems, as you can see from the above “lifecycle” of the conversation. The complete value proposition includes address book, outbound identity (who am I?), inbound identity (how to contact me back — which may not be a phone call), outbound call handling, inbound calling and access to voice and other messaging services.

We didn’t dig into the privacy issues during the conversation, either. The call need could also broadly fall into one of three categories: information, transaction, or chatter. Information can be relayed as long as it isn’t some sensitive confidential business. Transactions are harder: do you really want to read your credit card details out to all seats between 31A and 33C? And personal chatter will lack emotional impact due to reticence amongst strangers.

Finally, payment isn’t part of the value proposition (as it’s something you take from the customer, not give to them). Still, having to get your credit card out is another opportunity to have a “can’t be bothered” moment.

The Telco 2.0 prediction is that the Ryanair service will be a success because it fixes all these problems. Furthermore, we would expect the bulk of the revenue to come from SMS, then from inbound termination fees, and lastly from outbound call fees — a complete reversal of the airphone model.

The FMC lessons

Much of the effort in deploying FMC technology has focused on one very narrow problem: hand-offs between fixed and mobile networks. With the airphone example, the operator didn’t solve enough of the user’s problem. In this case, it focuses on solving the least critical part of the puzzle, one that the user may care little about. The attraction to the operator is clear, in that they can offer a feature which is intimately tied to their network and handsets. The risk to FMC operators is bypass by nimbler players who cheaply pick off the piece-parts of the puzzle, without having to carry the costs of the FMC infrastructure.

Skype already offers me the chance to verify ownership of my mobile number, by sending me a security code to re-enter onto their web site. I can then send SMS messages with an outbound ID of my own cell phone number. Likewise, services can piggy-back onto existing channels to offer consolidated inbound and outbound identities. One unique solution for landlines is PhoneGnome, which can intercept inbound and outbound PSTN calls and bridge them with VoIP services to “steal dialtone” from the incumbent operator. [Disclosure: article author is an investor and advisor.] The same trick is harder to pull off on mobile devices.

Similarly, a consolidated address book could be offered using SIM card exchange, Bluetooth, Outlook sync, or network-managed address books. Today it’s a pain to provision the address book in your home DECT phone, but there’s no reason that should be the case in future.

FMC proponents also gloss over the loss of utility FMC may cause. Sometimes I may wish to call the place, not the person (“it’s coming to rain and I left the window open!”). I may want to partition my life, and turn off my mobile at night, but still allow urgent inbound landline calls.

In summary, FMC may be as much about satisfying the needs of operators to lock customers in as it is about fixing the problems of users. In the current environment that’s a very dangerous strategy given the multiplying number of choices users have and declining market power that network access ownership offers. Many users already have the FMC solution they seek: the standard mobile phone, and nothing else!

Managing social acceptability

There are some other noteworthy aspects of the Ryanair service.

Passengers on super-discount Ryanair aren’t likely to complain too bitterly about disturbance from ringing phones and dull conversation. The airline has skilfully set the expectation of service low, and generally over-delivers on the core values of punctuality, schedule and price. If you arrive alive for your €0.99, it’s a success. On more upscale airlines, there a potential problem from social nuisance. It wouldn’t be surprising to see some airlines compromise on allowing SMS and voicemail access only. This suggests that for once we may see some user benefit from vertical integration of network and application. A pure “dumb pipe” leaves you at best in a cat-and-mouse game with passengers on deep packet inspection and blocking of “anti-social” application traffic. Forcing users through gateways where you get to inspect the message adds value. The elimination of externalities of use exceeds the loss of innovation, and ensures a sound economic model. Dumb pipes are only a means to an end, not the end itself.

Connectivity is King (but it’s more than just a pipe)

Boeing recently shut up shop on it’s in-flight broadband service. This suffered similar troubles to airphone: a $1000+ communications device with limited battery life required, to be operated in a space where even Cirque du Soleil would struggle to swinging a cat. The service price was quite reasonable: indeed, for long-haul I would say it was cheap. Quality was patchy but generally OK. I’ve received a Skype call this way, so it’s real broadband.

The lesson is that, again, you need to look at the whole user experience and need. People want to communicate with people. That means giving them connectivity, service and devices. Connectivity alone is a raw potato: useful, but not tasty.

Mobility is Queen

Interestingly, similar GSM-in-plane technology deployed elsewhere could end up spelling bad news for Verizon, Sprint and KDDI, who use incompatible CDMA technology. If aircraft standardise on GSM, I can see a lot of churn ahead. Each then has a nationwide network in 2D, but nothing in the vertical Y axis! Coverage always beats features, speed and service in wireless wars. No wonder the bidding in recent ground-to-air spectrum auctions has been so well contested.

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August 29, 2006

Telco 2.0-Compliant

Some people who’ve read the Telco 2.0 Report have asked us for a snappy way of testing if their company is ‘Telco 2.0-compliant’. The manifesto’s a bit wordy, so here’s a shorter suggestion, followed by even more disgested ones:

“A ‘Telco 2.0 Compliant’ operator acknowledges the decreasing market power that owning network distribution offers, the increasing loss of innovation that walled gardens cause, and the threat of disintermediation of service revenue by Internet-based players.

It accepts the inexorable trend towards more horizontal market structures, the unbundling of value chains, specialisation and partnership.

A compliant operator will:
- empower users and partners with a platform to access to non-network assets such as billing, retail, identity, distribution and payments.
- vertically integrate services, access and devices only where there is a clear technical or user need.
- provide end-user services only where there is a defensible advantage over Internet players, based on costs, scale, security, flexibility, trust, standardisation or integration.
- seek new ways of funding and pricing network access that reduce operational cost and wasteful infrastructure duplication.”

…One-sentence version:

“A ‘Telco 2.0 compliant’ operator specialises in those elementary functions it has an advantage in compared to Internet-based players, and avoids vertical integration of access and services unless there is a compelling technical or user need.”

…Or, in summary:
“T2-compliant operator = the stock market believes it has long-term sustainable basis for growth in an IP-based world”

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Advertising-Funded Content: A Cynic’s View

Concerned that I was getting too enthusiastic about the opportunities for Telcos to carve out a niche in the advertising space, I put in a call to a mate who has a relatively senior marketing role within a global mobile operator (let’s call him ‘X’).

X has been around the industry for a while - he was a product marketing manager for SMS way back when - “total joke, I was a little nobody put on this minor product that was going nowhere and then BOOM! the thing takes off, much to everyone’s surprise…”. He retains a healthy skepticism about the performance and future prospects of operators believing them to continue to chase mirages of revenue growth (3G, HSDPA, MMS, Mobile Content etc. etc.), rather than accept that the market has peaked and that the future holds near-term cost-cutting ( “slash ‘n’ burn” ) followed by long-term operational efficiency ( “yield management” ) with, at best, 2% per year earnings growth.

Here’s a highly edited ‘transcript’ of our call:
Me: So, tell me, where do you see the opportunities for operators to get involved in the advertising value chain?

X (laughing): Advertising - the latest great white hope, eh? We are recruiting like mad in this area and senior management see ‘the google business model” as being the next big source of revenue growth. But why? What do we offer: the portal sites can provide all the value that advertisers need? We operators don’t bring anything to the party - we can’t add any value. And, in any case, advertising (like most web browsing), just doesn’t work on the mobile phone - it is a crap experience. We will end up as an ISP and ISP’s don’t get a chunk of Yahoo! and Google’s advertising revenues.

Me: What about the customer information you hold on customers and the AAA benefits of the SIM? Couldn’t these be used to (a) provided better content and advertising to customers and (b) a better feedback loop to advertisers?

X: But we don’t understand our customers! We have a billing relationship and we know how much they spend but we don’t know what they spend it on beyond voice and messaging (mainly because so little is spent). Google, through its search facility, knows what I want at that moment and can provide relevant advertising at that moment. But we are rubbish at this - it is not, as you consultants say, part of our core competence ( ouch! ). Our portals are rubbish - noone wants to use them.

Me: But what makes them rubbish - bad structure, wrong content or over-priced?

X: All of the above but probably the last two are key - content is not compelling and it is too expensive.

Me: Well, how about outsourcing the portal to the specialists but with a deal to provide integration with your identity, CRM and network assets to promote personalised advertising? Higher advertising revenues would enable you to drop the price of content and potentially even make it free, like the new service annouced by Universal.

X: This all sounds fine in practice but even if we do outsource our portal to a Yahoo!, I just can’t see us managing the process effectively. I think advertising will be a small revenue stream but there is no way it is going to be the industry-changing event that people expect.

Me: I agree that advertising’s importance MAY have been overblown, but don’t you think that many of your objections are not really structural but based on your cynical belief that operators will execute badly? If this is your premise, then aren’t you assuming that they will never adapt or develop effectively.

X: Oh, I think you are absolutely right. But let’s face it, all the empirical evidence is on my side!

I am trying to persuade X to attend the event on the 4-5th October and expound his “cynical-bah, humbug” views about this at length.

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August 23, 2006

YouTube’s 16 million Visitors Ripe for Advertising Revenues

The social networking phenomenon on the web shows no signs of abating. YouTube has just broken into comScore’s Media Metrix Top 50list for most visited sites in the US. YouTube had 16 million unique visitors in July 2006, up 20% on June and a far cry from the 58,000 early adopters who hit the site in August 2005. If the minutes of viewing were aggrated, it would be in the top 5 terrestrial TV channels in the USA. These figures really seek to underline the massive growth in social networking and self-expression sites which enable users to exchange personal videos and pics (as well as illegal pirated content).

Yesterday, YouTube also announced its first steps into the advertising arena with a Paris Hilton channel dedicated to promoting the singer’s new album. At the time of writing this, 125,000 people had already viewed the new channel. To date, YouTube has been remarkably low-key with advertising — a few Google ads are about the only thing I have ever come across. But with spiralling bandwidth and development costs and the prospects of a juicy IPO or acquisition, the company is keen to grow its revenue streams.

YouTube, MySpace, Flickr and the other high-profile social networking sites are just the tip of the iceberg. It seems there are sites for every social community.

Advertising appears to be the best means to support these sites and some of the content provided within them. But to date, web-based advertising has shown that Telcos need not be a part of the mix (beyond carrying the bits and bytes). On the web, the destination site (e.g. social networking or search engine) manages the relationship between user, content and advertiser. Operators can insert themselves into this relationship in their own walled gardens - Orange World, Vodafone Live! and T-Mobile’s T-Zones for example (although even this has proved tricky). It is, however, much more difficult for them to carve out a niche when users are free to roam the web from their mobile device — the Telco 2.0 world.

It seems that Telco’s have an opportunity to play in this space and potentially leverage some of their (unique-ish) assets:

  1. Authentication, authorisation, and accounting controls - who the customer is, what service they are buying, how to bill them. Useful not just for delivering and billing for services but also for tracking advertising effectiveness.
  2. Identity. Operators can federate the existing phone number system with the Internet services, preventing users creating multiple identities where this is undesirable.
  3. Customer relationship Management - a history of customer preferences and usage, for more contextual advertising. By having geographic, demographic and preference data, the telco is in a better position than other players to insert the right ads from a selection offered by a partner like Google.
  4. PSTN integration - for things like click-to-call. For stimulating core services and faciliating consumer response to advertising.

The question is can operators come up with a valuable and sustainable business model for advertising-funded content in the Telco 2.0 world before the opportunity disappears? Current platform plans appear long on real-time session control, and short on access to the other customer data and billing assets.

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August 22, 2006

Illustrating business model change

On the dawn flight to London this morning, I was busy enjoying my complimentary sausage, egg and bacon breakfast and pondering how British Airways manages to eke out a profit from my £36.50 fare. Airlines and telecom can often serve as examples for each other. Both involve capturing as much value as possible from sunk network capital whose momentary value is lost forever if not filled with people or packets.

I’m a regular traveller between Scotland and London. Each time I book I check the relative merits of the train as well as BA, bmi, and EasyJet. I’m quite good at avoiding handing over much money. After all, I am a bit Scottish. Yet by bundling and selling its product differently, BA could make more out of me.

Instead of sustaining the cost of me booking over and over, BA could offer me a booklet of pre-paid travel vouchers. These would be discounted slightly, and redeemable against any flight. Peak time flights would involve a surcharge between the voucher value and full fare. The vouchers would also allow some additional change and refund flexibility not available on standard public fares. BA gets to keep me as a customer for longer, my loyalty increases as I’m less prone to gain frequent flyer status on a rival, and their free cashflow gets a boost.

This is a way of differentiating itself through following a different business model archetype or template. Every business attempts to differentiate itself from potential rivals. There are maybe 8 or 10 different buckets into which you can classify each attempt at business model differentiation. One such generic business model is product differentiation, which is often seen as being synonymous with “differentiation” but is only one form. In this case, it was the offer of an inclusive breakfast, not offered by rival bmi, and pre-selected seating when I checked in online the night before, not offered by any rival. In this case, it’s an expensive proposition for BA, as they have only weak competitive advantage in keeping me fed compared to airport vendors.

There are other means of differentiation of business models. For example, it could be the production method. In the case of airlines, they all fly similar planes. However, for a company like Toyota, it made relatively ordinary cars using a uniquely productive lean manufacturing system.

In the case of the coupon book of flight vouchers, BA would be differentiating itself through how the product is sold. The flight can be ordinary even if the way it is transacted is not. Another example of this might be Avon Cosmetics: ordinary lipstick sold in an extraordinary manner.

So, how could we apply these ideas to telecom? Telcos are desperate to differentiate themselves. A consistently successful differentiation strategy has been “distribution” — i.e. network coverage that makes your service available where rivals cannot reach. This continues to be the case with developments in fixed-mobile convergence in markets where in-building mobile coverage remains weak.

But can a telco differentiate itself on sales method rather than product or distribution? How could a telco make use of the BA coupon-book or Avon cosmetics pattern? Well, you might take a highly standard product like a generic family mobile voice+messaging plan, and bundle it with some other product that helps to reduce churn. Since mobile phone costs are one of the larger items in the family budget, ideally we’d chose a product with even larger cost (in which we can hide out price) and with even lower churn. How about one of these…?

“Hurry while stocks last! Re-mortgage with us and qualify for unlimited UK calls for you and your family*!”

Naturally, you won’t expect the most competitive possible interest rate — something has to give. The operator would be expected to give a hefty discount to the reseller, and one that reflects the exceptionally low anticipated churn. Plus there’s that pesky asterisk — when a telco says they are “deploying an asterisk solution” they aren’t referring to the usual meaning.

Given the struggles telcos face in devising compelling applications and services for IMS, perhaps some back-to-basics business model re-think is in order? Funnily enough, our own survey said the same thing.

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August 17, 2006

Gordon Smillie, Group Portfolio Strategy, BT Plc to stimulate Telco 2.0 Brainstorm

We’re delighted to confirm Gordon Smillie, Director, group portfolio strategy, BT Plc, as a stimulus presenter on Day One of the Telco 2.0 brainstorm. We’ll be briefing him in detail next week about what to focus on for the event and how to work with the ‘Mindshare’ process. In the meantime below is a short biog.

We’ve recently updated the event site re agenda, speakers etc: go here to see this.

Gordon is responsible for leading BT’s global portfolio strategy across all customer segments from consumer to large corporate customers. This involves determining what the group sells and the roadmap for services to be offered in the future. In addition, Gordon heads Business Development for Web21C, the group-wide programme to open up BT’s platform for applications and services.

His previous role was MD, ICT for BT group, where he led the corporate initiative to become a global networked IT Services Company. (ICT now accounts for 25% of group turnover). Prior to joining BT in July 2004, Gordon spent ten years with Microsoft (last role UK Group Executive Director), and ten years before that with IBM, leaving as Industry Director, in the Government, Utilities and Telecommunications industry group.

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August 15, 2006

Mobile Advertising: A Working Example

I had lunch today with Richard Marshall the CEO of ad360 and the Technical Director of Rapid Mobile. Rapid Mobile have developed some very successful software which enables punters to gamble on Betfair from mobile devices.

Richard gave me a demonstration of the ad360 technology which he will also be demonstrating at the Advertising Funed Content breakout of our Telco 2.0 Brainstorm. This enables operators to load a brief advertisement on to a user’s phone while they are waiting for content to load.

As he explained, most content - text, pics, video etc. - has a short delay before it loads on the mobile phone. During this lag, a piece of advertising is popped on to the screen. This can be a simple ‘awareness’ ad or can have a specific call to action (click to connect or redeem this discount voucher).

Because each software download has a unique identifier, the click-through and voucher redemption rates and, potentially, user behaviour can be tracked by the operator and/or advertising company. This provides much greater value to advertisers than broadcast or even paid search advertising.

As with web search advertising, the adverts can be made contextually relevant. For example, if I click on a food-related link then an appropriate foodie advertisement is popped to the screen. When this is combined with my individual preferences (perhaps I love Burger King but hate the Big Mac?) then the value me as the user is also much higher.

ad360 is still a fledgling company (hence no URL), but the technology is compelling. Richard is in discussions with major mobile operators and handset manufacturers. Delegates at the event will enjoy this practical example.

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August 9, 2006

Verizon Music Store: Still Swimming in Chocolate

A good commentary here of Verizon’s latest decision to remove the exorbitant $15 per month subscription charge for its download music service and launch the service on a sexy new phone - The Chocolate.

Shock! Horror! Customers were not prepared to pay a hefty subscription PLUS airtime charges PLUS find that they could not play MP3’s on their phones (the Verizon software disabled this).

The current move looks a step in the right direction, but it still costs $2 to download a song over the air to your phone and only $1 to do it via your PC (from which you can synch to your phone for free). Verizon are looking to follow Vodafone’s carpe diem approach (embodied in the Now campaign) and get users to pay a premium for an ‘impulse’ mobile download.

Essentially, Verizon is still committing Telco 2.0 heresy by asset hoarding and retaining the culture of scarcity. “It’s more difficult to get music on the move so we’ll charge you more for it.”

Wrong approach. Make it easier for customers to get music on the move and grow the overall revenue pie (taking a good slice of it along the way) by dropping the price and building in functionality that makes selecting music simple (recommendations etc.). Telco’s remain obsessed with per unit/transaction/minute margins. This can be dangerous since it keeps prices high and limits market growth. What about dropping consumer prices for content and seeking market growth PLUS alternative sources of revenue, such as advertising?

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BT as Telco 2.0 poster child?

Om Malik has a profile of BT over at Business 2.0 magazine. Although the essence of the story is well known, and BT’s “new wave” products have been gathering pace for a long time, it’s worth a read.

Nobody’s perfect, but BT is one of a handful of operators that have fully embraced the new reality. In BT’s case, this has involved:

  • Isolating itself from voice revenues, which now only make a small part of the business.
  • Building a cost base compatible with a lean access provider, not a bloated former PTT.
  • Re-structuring itself horizontally into retail and access/wholesale. (How voluntary this was is a matter of debate.)
  • Diversifying, in BT’s case into enterprise services.
  • Adopting a “platform” play with all the IT and customer/channel components to build commercial networked applications.
  • Modernising the network to eliminate obsolete equipment, and adopting a consolidated low-cost infrastructure (i.e. 21CN).
  • Playing the regulatory game with just the right level of aggression.

They got out of mobile telephony, and got a good price for Cellnet as it became O2. It remains to be seen how well their “asset-light” approach to wireless will play out. They’ve avoided the worst of the 3G fallout, and have opportunities to skip a generation to very IP-friendly networks, particularly as the analog TV spectrum comes up for sale. In the meantime, strong competition between five UK networks means getting a good wholesale price for your MVNO isn’t that hard.

Not everything is sweetness and light, however. Early experiements in FMC were half-baked. They’ve not quite worked out how best to interact with Internet players, and the seams in products like the BT Yahoo Communicator are all to obvious. The click-to-pay products haven’t really taken off, and without the prepaid wireless market your payment and distribution channels are limited. The amount of mindshare for their platform among IT developers seems small. You don’t detect any buzz among the geek folk. Nobody seems to be thinking: if I build my app on BT’s 21CN, and learn about their APIs, my career will be more secure and my business more profitable. “Build it and they will come” isn’t good enough. BT’s still being slow in opening up their business and technology platforms. This will become more of an issue as the broadband boom slows, and unbundling plus price wars takes some of the easy money off the table.

They’ve got a lot of focus on sweating the copper assets. You have to wonder if they’ll manage the ultimately inevitible move to fibre, particularly if it demands a different asset ownership model than the traditional telco networks. The conundrum is that everyone wants to own some kind of monopoly or differentiated distribution asset. Yet any measure of success in such a capital-intensive business invites regulatory confiscation of those profits, or requires you to win spectrum auctions designed to transfer the profit base to the government before you even start. Networks are almost liabilities, not assets; deploying, servicing and operating them is where the money is. Just like with the roads, nobody makes a profit from the road itself but being a road builder, whilst hard work, can be a lucrative occupation.

Despite these snags, BT remains one of the ones to watch and learn from. They’ve certainly bought themselves a lot of time to consider the economic problems of transport of information goods.

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August 7, 2006

SIM cards and identity in Telco 2.0

The Telco 2.0 team came across this news item on SIM cards today from MEX. It describes how SIM card providers are incorporating more memory, processing power and secure storage into SIM cards. They are also providing the back-office tools to distribute data to those cards and manage their content.

Dean Bubley recently wrote an incisive analysis on The Tyranny of the SIM card. Whilst not quite time to call a priest and perform last rites, he notes that it has many deficiencies in a converged world.

So what is the Telco 2.0 approach to subscriber identity?

Stripping the SIM value proposition back to its basics, it does authentication. Bolting on storage, DRM and other functions are piggy-backing on the distribution system, and those things only make sense if they have overlapping distribution/lifecycle patterns and user behaviours. Often, they do not. For example, people also want to transport data between devices using memory cards, which have sprung-loaded pop-out mechanisms. A SIM card generally requires dismantling the back of the phone and breaking a nail trying to extract it.

The core authentication function itself boils down to a combination of two things: something you have, or something you know. The “something you know” (such as a password) leads to operational complexity and human frailty. When your correspondent was working at Sprint, the launch of the faster CDMA 1xRTT network (“2.75G”) was originally due to be accompanied by a new identity infrastructure. Users would be able to log on to any Sprint handset and use its features, with all activity billed back to the appropriate account. However, once the project got beyond the network division to the wider business, it was abandoned. The back-office complexity of provisioning, billing and support was too complex and costly. Front-office issues such as training retail salespeople in the new system were also underestimated.

Thus “something you have” continues to be the primary mode of authentication for mobile services. It is a strategic imperative for operators to make phone numbers the dominant identifier for users across all services and devices. The SIM is a natural anchor of such a system for as long as building a common multi-device/multi-user/multi-service authentication system remains a technical and economic challenge. On mobile devices, the SIM plus phone number is a natural extension of existing use patterns. For the PC and other “converged” devices like handheld game players, the field is wide open.

We believe the way forward for subscriber identity is to enable the SIM functions to become more accessible to a wider audience of partners and developers. As always, a Telco 2.0 sees the opportunities as more “horizontal” than “vertical”.

The first way of doing this is to extend the SIM itself to be more accessible to third party applications. If the functions are locked up in the air interface provisioning, and are invisible to applications, they carry little use to new services. Only exposing the functions to operator applications perpetuates the failing vertical integration model. There could be many ways of performing this technically. For example, there are existing standards for passing the mobile station ID in HTTP headers from WAP/web gateways, which could be extended to include additional data authenticating the session using the SIM. The SIM can also be used as a secure store for handset-based application such as mobile banking.

Complementing this functionality must be an extension of the reach of the operator identity capabilities. One way might be to use Bluetooth, and create an authentication profile. Give every subscriber a USB bluetooth key to put in the back of their PC. (I bought one recently for well under $10 retail.) Create platforms and distribution agreements that make it simple for online applications like IM clients to accept identity and payments via the mobile through the wireless link.

This is a very different vision of “convergence” than that often pushed, where the telco vertically integrated model blankets an ever-wider set of applications. Instead, we follow more the PC/Internet model of each player in the market focusing on the things they do well, with well-defined interfaces between them. Converged/FMC operators will soon find themselves competing against the Trusted Computing initiatives from those same PC makers for user/subscriber identity. SIM cards and the mobile OS have been secure from being so closed, but that advantage is about to become a liability.

The first step we would take is organisational. You recognise that what you know about the customer, and your relationship with that customer, is what makes the network asset have value. “Identified, authenticated, private, secure and validated bits” are worth more than their converse. The back-office mess in terms of digital identity at most carriers retards forward motion in services and platforms. Data quality issues ooze from every business process. The customer data is the business asset, not the network. Networks are replaceable, customers less so. We would make a business function out of customer identity management, just as today you have revenue protection and market segmentation teams as core enablers.

Secondly, we’d aim for simplicity. Loading more and more functions into the SIM card probably makes the business more complex rather than less so. A memory card slot may be boring, but it’s effective. Convergence for its own sake isn’t worth doing.

Lastly, “distribution always wins”. It’s the equivalent of “network coverage”, but a dropped identity is less visible than a dropped call. You’re probably reading this article on a PC right now, and I bet you have a mobile phone within reach. The question is why these two aren’t talking to each other. Anything that extends the telco identity assets is definitely Telco 2.0 approved.

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August 4, 2006

BT’s new price plan - Cuts or Increases to real prices?

Great in-depth analysis here of BT’s new price announcement, by our good friend Jeremy Penston. He says: “The headline was “Millions to benefit from BT’s cheaper simpler packages”, but it could well have been “BT doubles call prices”. Either way, the headlines miss the point.

The new price structure shows clearly that BT is going to take on competitors at their own game - with headline loss leaders, recovering margin from premium pricing in second level products. BT was not allowed to bundle under the previous regulation, now they are. Where’s this going?”

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IMS Reality Check

Just posted on the IMS Insider blog our ‘hypothesis’ for the IMS Services Forum, which runs in parallel with the Telco 2.0 brainstorm on 4-5 Oct in London.

The hypothesis trys to give some clarity re the purpose/status of IMS in the market, and is designed to provoke strong reactions from the IMS community. We will be discussing ‘antitheses’, and hopefully reaching a ‘synthesis’ at the event.

Summary: focus IMS on supporting better basic voice and messaging services, and forget all the futuristic combinational and ‘multimedia’ stuff.

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August 2, 2006

European Commission Member to use Telco 2.0 Industry Brainstorm to Test Regulatory Framework Ideas

I had a very interesting call yesterday with one of the speakers at the Telco 2.0 Industry Brainstorm we are organising for October 4/5. Ken Ducatel is a member of Viviane Reding’s cabinet, which has overall responsibility for policies and regulation relating to Information Society and Media in Europe.

The Commissioner has recently kicked off a review of the regulatory framework for electronic communications and network services. This is a wide-ranging look at how regulation is used to promote open and competitive markets as technological and competitive environments are changing. In other words, how should the Commission regulate in a Telco 2.0 world?

The draft proposals are open to public consultation until October 27th meaning that Ken can use our debate on October 4th and 5th to test a range of ideas with the Telco community. In November and December, the recommended changes will be developed by the Commissioner’s team.

Ken explained that the timing for these regulatory changes is critical. Viviane Reding and her team effectively have one bite at the cherry to get this right because major regulatory change in Telecoms will not be back on the agenda for a significant time. He recognises the delicate nature of regulating during this time of change and particularly indicated that the Commission is keen to neither “kill incumbent investment in access networks nor new competitors investing in access technologies”.

Another key point he noted was the huge range in views about regulation among Telco’s, particularly among Incumbent operators (who have the most to lose through regulation). He cited BT and OfCom as being the most progressive, but said that the Commission has problems with some Incumbent operators and national regulators that are ‘overly supportive’ of the status quo position. In other words, there is too much protection going on in some markets (I’ll leave you to draw your own conclusions).

Ken is keen to test some ideas at the Industry brainstorm and debate these with informed, senior Telco management. Some ideas he mentioned include:

  1. Forcing separation of the Telco layers (ie network and service) รก la BT in the UK;
  2. Tweaking rules relating to the powers of National Regulators and how they implement changes in their national markets;
  3. Experimenting with options to allow for different regulations dependent on market conditions (e.g. between rural and urban locations).

In keeping with his boss, Ken is looking to put some strong (and hopefully controversial) ideas forward at the brainstorm. Should be a good debate.

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