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October 30, 2006

IMS - what is it good for?

Apologies for quietness on the blog - we’ve been digesting about 150 pages of dense verbatim output - ideas, comments, debates, votes - generated by 220 participants at the October Telco 2.0 Industry Brainstorm. We’ll be summarising our findings here later in the week, and announcing more details of our follow up brainstorm on 27-29 March in London and some new research programmes.

In the meantime, at a time when IMS is still being publically hyped by senior execs in the industry - largely for political and investor relations reasons, we believe - we’ve just written a piece on our view of the value of IMS in a Telco 2.0 world on our sister IMS Insider blog here.

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October 19, 2006

Telecoms Courses at the University of Oxford

Oxford University has been an active supporter of the Telco 2.0™ initiative. They offer a range of courses for telecoms and engineering professionals. We are pleased to endorse their programme: these are high-quality courses led by some of the world’s leading specialists.

Details of their autumn/winter course programme are as follows:


Emerging Technologies

Management Skills for Engineers, Scientists & Staff in Hi-Tech Companies

Systems Engineering


Contact the Programme Manager, Peter Holland at peter.holland@conted.ox.ac.uk or +44 (0)1865 286959. Website at www.conted.ox.ac.uk/ousep.

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October 13, 2006

Carphone Warehouse: Telco 1.0 thinking?

There has been much excellent reporting on the troubles of Carphone Warehouse (CPW), the UK’s leading independent retailer of mobile phones and services. Their current crisis is that Vodafone have punished them by selecting a rival for an exclusive distribution contract, and other operators are thinking of following the same track. The result has been carnage of the CPW stock price.

This has been precipitated by CPW trying to become more of a vertically integrated business. Their MVNO, Fresh, was a relative flop, and the operators have been willing to ignore the fiasco. However, their suicidal leap into offering rock-bottom broadband and telephony service — just as the network operators were feeling the squeeze to enter the same multiplay markets — is harder to fathom.

In short, you simply have to look at the Telco 2.0 basics: get horizontal, unless you’ve got a good excuse otherwise. CPW have swum against the Telco 2.0 tide, and have found the currents away from their home beach not to their liking. If they had absolute power in retail distribution, then their strategy would make sense. They don’t, and it now looks foolish.

Post-paid mobile plans and up-market mobile phones are relatively complex sales that supermarkets can’t follow, and their business is in extending that knowledge to new domains, not bundling loss-leading network distribution which their core business doesn’t benefit from. Even media companies are running away from distribution ownership!

So what should they have done? Go for the kill within that horizontal segment. They should have either a bought out rival distributors, or devised a distribution plan for a wider range of “digital lifestyle” goods and services that competitors couldn’t have matched quickly enough. They could then use this hardware/software-driven strategy with operators to show that they are helping pull through operator services…but the trojan horse is that they are actually freeing customer from operator control and managing customer relationship and attention.

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Telco 2.0 Brainstorm - Next Steps and Feedback

We’ve just sent out details of next steps to the participants from the big brainstorm last week. We’ve been delighted by the initial feedback (see below), and also the flood of ideas of how to develop the concept for next time (we’re aiming for 27-29 March, London).

Delighted also about the multiple orders coming through from around the world for the Telco 2.0 Market Study (the core background to all of this).

The chart below shows our initial thinking on the follow up event in March - slightly bigger, highly interactive of course, more tangible examples of Telco 2.0 activities, and more focused on end-user requirements rather than telcos’ internal issues and/or technology per se. You can see the focus on 4 big market areas - 1.) ‘Digital Youth’ (the 14-30 demographic - music, entertainment, social networking), 2.) ‘Digital Home’ (inc. IPTV, short signal solutions, home hub, etc), 3.) ‘Digital Town’ (FTTH/Wimax/wifi/OPLANs: broadband-based models enabling new approaches to community health, goverment, and education), 4.) Digital Enterprise (solutions for the worker). In each of these areas we will look at telco business models, Voice & Messaging 2.0, Content, Access, and the implications (for telcos) on network design, IT and devices.

We’ll be consulting with the industry over the next few weeks, do let us know your thoughts.


EVENT FEEDBACK (thank you):

It was an exceptional event.

COO, Major Operator

A fabulous event. It is extremely rare that I bother to write to an event organiser, but, in this case, your staff and organization skills have left such a positive memory I wanted to compliment you all.
CEO, Service Provider

This was the highest quality event of its kind I have ever attended.
Vice Chairman, Major Advertising Agency

Refreshingly different from the run of the mill events by the major conference producers.
Director, Major Vendor

Congratulations on a great event - truly different. I met some amazing people.
Chief Telecoms Analyst, Investment Bank

Very stimulating after all those “get-me-out-of-here-fast” conferences.
CTO, Major Operator

The [‘Mindshare’] approach created much better interactive discussions than other conferences I have been to. Also, due to the pre-screening, the speakers were all of a higher standard than most other conferences.
Director, Major Operator.

The interactive nature [‘Mindshare’] was excellent… more intimate than the larger shows, as a result there was an opportunity to have a real conversation with the audience.
Vice President, Major Media Company

The idea of the interactivity with the ‘Mindshare’ technology is fantastic - people have no barriers to asking questions or giving comments.
Marketing Director, Major Vendor

A smart group of relevant people … and much more interactive than any event I’ve attended before.
Senior Vice President, Major Service Provider

The balance of presentation duration (avoiding death by ppt) and the use and quality of the [STL] analysts was excellent.
Director, Major Vendor

A real thought-stimulator and eye-opener that widened my perspective.
Network Architect, Major Operator

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Finding growth outside of network assets

“Convergence” is typically used to describe a process whereby the anarchy of the Internet will slowly bow to the economic (un)reality of Telco 1.0 and controlled introduction of “combinatorial” services. Unsurprisingly, we eschew such language here in favour of more precise terminology. Nonetheless, if there is one place where “convergence” does happen, it is in devices. Since mobility is valued so highly, users are willing to make functional and user interface compromises to achieve their goals. (The usual jokes about nobody buying combined microwaves and fridges wouldn’t look so funny if told from the perspective of a Mongolian nomad in his yurt, who might find such a device quite useful tethered to a small generator!)

Many “intimate” and personal objects have been sucked into the mobile device already: radios, cameras, watches, dictaphone, address book, diary, and so on. Ring tones compete with neck ties to add colour into drab corporate environments. (Who will want to work in cubeville in 20 years’ time? I’m not going back!) Phones even evolve into pieces of jewellery.

Yet there are a few notable exceptions sitting in our pockets. Time is already running out for our wallets. No doubt identity documents like driving licenses will follow suit. A biro, scrap of paper and a handkerchief will hide in every handbag until the end of time.

But what’s the one thing you won’t leave home without — even above your mobile phone?

Your house keys.

So as a thought experiment, let’s look at the door entry market as a short case study for Telco 2.0.

The button for number six doesn’t work, so I call up when I visit.

We’ve done no research on door entry systems here at Telco 2.0. (My parents bought a door chime about 20 years ago, and it’s still maturing in the garage, with the door knocker having a good few hundred years of life left. Still, there’s hope. The ladder hooks reached full maturity after just 15 years, and are now up on the wall doing their job.) We’ve no idea how compelling the market is. This is not investment or product advice. For all we know there could be a successful existing market, or it’s already been a flop. It’s the principle, not the practice.

OK, caveats done.

Our thesis is that a Telco 2.0 operator will adapt to a “horizontal” world with layered interactions and extended value chains. Those who remain in the services space with a deep customer relationship will combat Internet players by understanding that the network is only part of the puzzle. Many of the assets that are hard to replicate stand outside the core network. For a US telco, sales tax management and interfacing with the individual states and their regulations is a big deal. A telco can help a small idea grow big. We see other important assets. “Billing” is often glibly trotted out, but it’s really an amalgam of functions which include more subtle issues like the ability to implement and manage large marketing promotions without overwhelming your call centre or e-commerce site. The list is quite long, and indicates there’s substantial hope for those parts of the industry that adapt to a more modular world. (If we didn’t believe in it, we wouldn’t be investing our careers in it.)

The door entry market looks attractive to us as a telco partnership proposition in several ways:

  • Extends the existing device business model and functions. This is a network of compatibility, not a network of communications (more like USB than GSM). It grows the “telecom” ecosystem, even if that term has decreasing meaning. Collaborating operators could produce both de facto and de jure standards: the outcome is standardisation, which acts as a business magnet.
  • The telcos have some great existing customer data and relationships to market the service. Simple information can be hard to get. Is a property is a second home? (This is a key target market for remote entry.) Low-use households enjoying a rebate are likely to contain an elderly person who again might fit the target demographic. Granny might have difficulty telling the difference between a bona fide visitor and a conman, but her daughter won’t.
  • It has the potential to extract more value from the strong identity inside cellular devices already in the field. SIM cards and multi-factor authentication mean telcos can build more confidence into the system at lower cost.
  • The retail stores and logistics of the operator can be included in the picture. Even if the product isn’t promoted in-store, you might be able to go to the store to pick up the equipment or to provision and pay for the service.
  • The existing field service network of landline operators fits the installation need. You’ve trained someone to staple a cable to the wall, and equipped them with a van and a staple gun. Now tell them how to wire a box onto the end that fits into the door.
  • Last, and maybe least, the network itself. The door system may communicate through a wireless WAN, and where remote entry is enabled the activator might be using a 3G handset to see who is at the door. But there won’t be a separate billable event every time someone knocks at your door, so keep that billing system in the box where it belongs.

Such a system would require some change of habit in users. That means it will only offer compelling benefit at first in some niche markets. The implication is that the operator is unlikely to succeed on their own. The key (pun intended) is to find a partner in the existing security and door entry market whose solutions can be made cheaper and penetrate further towards the mass market. If you’ve got assets these partners can use, you’ve won the dumb pipe game: not by making the network smarter or faux-circuit emulation to retain control, but by having a portfolio of complementary business activities where the network — to steal a phrase — at the core of the business without being the core business.

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October 12, 2006

Friends and Family 2.0

I’ve taken to conducting all my telecom research in the departure lounge of Heathrow’s terminal 3. If there is a crossroads of the world — Shibuya writ large — this is it. (Kansas City likes to promote itself as an international airport based on one flight a day to Toronto. Heathrow is so secure as the world’s top intercontinental airport it doesn’t need to shout. Although I pity anyone who ever has to navigate the northern perimiter road to return a rental car.) My last visit to LHR, I was perched at the T-Mobile wifi outlet, and it gave me a fascinating insight into Skype usage. I simply overheared the adjacent conversation between two travellers sat beside me on how they used Skype and it had changed their world.

Today’s intensive primary research was conducted with an abandoned copy of the Daily Telegraph. (For non-UK readers, they used to be nicknamed the Torygraph for their dogged support of the Conservative Party. The publication is having an identity crisis as the Tories turn social democratic and their aging supporters shuffle from the news pages to the obituaries.)

There must be fundamental law of telephony that at some point all carriers turn to a Friends and Family plan to mitigate churn. Here’s Orange’s pitch buried somewhere in the middle pages:

The copy text reads:

Choose an Orange friend as your Magic Number and you can talk to them for hours for free. And add another Magic Number every six months. Magic Numbers, get to know each other better.

Avoiding cheap shots at the marketing hyperbole, it’s quite good. Rewarding loyalty works, although the relatively thin initial savings weaken the incentives for “rate tarts” who shop around every time their contract expires. Yet a Telco 2.0 approach could do better.

At our event last week, Norman Lewis — Orange’s R&D supremo — fired an exocet missile over the bow of the telecom industry. His view: in future if there isn’t a social networking core to a service, nobody will buy it. So let’s apply that thought. Suppose I can call Mum for free. Yet last time I checked (around 7.30am this morning, as it happens) our relationship was bi-directional. Just as sons have mothers, mothers have sons. So why not add this: anyone with an Orange mobile or landline that you nominate as a “friend” (magic or not) also gets free inbound calls to you. (If you knew the Saga of the New Bathroom you’d appreciate the need for more cheap inbound minutes.)

This has a two-pronged effect. You’ve instantly doubled effect of the brake on churn. My mother, as an Orange user, is even less likely to leave them. But it’s far more potent than that. Would I dare leave Orange myself if the result was an increase in expense for many of my friends? The social pressure would greatly outwight the financial considerations. Would close friends churn to Orange if they knew it would immediately grant them substantial discounts? You could also blend in some rather fiendish marketing. The first time a new friend calls you from their mobile, but off-net, Orange would text them saying “Bob Smith has nominated you as a friend. If you were on Orange, your last call would have been free. Call us on 0800 123 4567 now to join us.”

The irony is that the open, simple telephony network is already the most potent of social networking devices, and can be deployed across almost any context. That’s why it’s so hard to displace with new communications systems. But whilst the service is social, billing is not. (The US cellular system’s “called party pays” is decidedly anti-social, hence the lower penetration.)

Unlike broadband and VoIP, the PSTN and mobile telephony tie access and service. You rent connectivity by the minute along with service. There’s nothing wrong or embarassing about this, and the model is of applications provisioning their own connectivity is likely to extend to IP (for example, as Skype does with Skype Zones). In other words, you can deploy “dumb pipe” services in future that technically decouple the pipe and service, but maintain some fiscal/billing integration. You’ll buy the bundled services up to some point where it’s cheaper to switch to all-you-can-eat broadband. For example, I sent a text message to my wife today from Montreal airport, and the £0.40 cost was a bargain compared to the next-best alternative of an hour’s expensive wifi.

But to make the model stick, as well as extend the lifespan of the legacy business model and infrastructure, carriers are going to have to show more innovation in the pricing of these services. If you really think billing is a telco advantage over Internet players, you’re going to have to actually play the hand you hold.

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October 10, 2006

Vodafone leading the pack in Social Networking?!

Knock me down with a feather, I have just learned that Vodafone is planning to launch a range of services on the virtual world website, Second Life. I was arguing last week at the Telco 2.0 event that operators need to learn from the social networking sites and develop offerings that yoke together communications and content. I never thought that Vodafone would be first into this (assuming they launch before O2 gets its deal with Bebo sorted).

I will mine my mole at Vodafone to fully understand the business model. I suspect that the Vodafone services are paid for by on-line users. This would be consistent with the Second Life business model where users buy products and services for their virtual world rather than receiving free goodies paid for by advertisers (users spend a hefty $500k every 24 hours and the growth rate remains very high). Such a model would be easier to swallow for Vodafone. I cannot believe that they would bear the prospect of giving those wonderful mobile services away for free and receiving advertising money instead.

More to follow.

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Microsoft Launches Mobile ‘Click to Call’

For those that missed it, Microsoft have just done a deal to use Ingenio’s pay per call advertising service on Windows Live web search for mobile. Details here.

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October 9, 2006

Telco 2.0 event: Ad-Funded Breakout

James Enck has already blogged extensively on Day One of the Telco 2.0 event and the Broadband Connectivity breakout on the second day and my colleague, Martin Geddes, has given some snippets from the Voice and Messaging day.

I ran the Advertising Funded Content breakout which attracted between 30 and 40 delegates (people moved around throughout the day and numbers therefore fluctuated). Delegates will receive all the verbatim output from this and the other breakouts as well as the plenary session on the first day, together with a summary analysis (the ‘So What?’) in the next few days. We will also send you a link to all the presentations. However, for those that couldn’t make it, here is a brief overview of what we covered in the Ad-Funded session.

After a little pub quiz on content and mobile entertainment to warm up participants, I did a quick presentation outlining the issues and hypotheses we would debate throughout the day. The overall STL thesis was that operators could no longer treat ‘content’ as a discrete proposition but needed to see it as an extension of their core communications proposition. The social networking websites are a great example of how content and comms are intertwined to provide a richer contextually-relevant experience for users. And boy, do these sites generate advertising revenues:


It’s obvious why Google has paid $1.6 billion for YouTube - they think this number is going to grow even bigger.

I ran through some of the things we might want to debate during the day:

  • What does the business model look like?
  • How does the operator role change on-portal vs off-portal?
  • What partnerships are required?
  • What is the best advertising model - pull vs push?
  • Are there technical issues and constraints?
  • How should we manage legal and regulatory issues - DRM and data protection?

I also outlined some inital thoughts on what operators should be doing to realise the opportunity for Ad-Funded Content. At STL, we believe the key asset for operators is their existing customer relationship and customer data - things that are largely taken for granted and not exploited. Exploiting these requires much more sophisticated CRM systems within operators and a greater appreciation of how customers consume and create content and communicate with it. This has substantial product development implications for customers as existing communications propositions need to be enhanced and extended. The other key requirement for operators is to appreciate that in the new world there is a new source of revenue - upstream advertisers. Google currently makes 99% of its revenue from these players and less than 1% from users. For operators, the reverse is true. Turning the business model on its head requires a new organisation and culture - one which treats upstream advertisers as customers not vendors or partners.


After this, Judy Gibbons from Accel Partners (a VC) outlined her views on the business models which would be successful going forward. She agreed that customer data and attention were critical if operators were to derive value from advertising. She drew a fascinating parallel between Microsoft in 1995 (where she worked) and telco operators now. In 1995, Microsoft’s business model was exclusively built around user purchases of software licences and the company had kicked off MSN but had no understanding of how to generate advertising revenue. Microsoft was forced to turn its business model upside down and Judy explained how operators needed to do the same by adding value to advertisers through increased customer knowledge and a better response feedback mechanism (who bought what, when and why).

Patrick Parodi, Chairman of the Mobile Entertainment Forum (MEF), then gave a very upbeat presentation on the opportunity for operators in mobile advertising based on some research that MEF has carried out across the value chain. He then went on to explain how the start-up he has joined, Amobee, has some of the answers for operators.

Delegates responded favourably to these presentations but many wanted more details on how the business model would work in practice and the potential role of operators. It was, therefore, great to have Rory Sutherland, Vice Chairman of Ogilvy One, step up and give his views. I would strongly recommend any of you interested in advertising (or indeed those that are not) to listen to Rory. He is very amusing and spoke at length without the crutch of slides on the opportunities and issues for operators from an advertisers perspective.

Rory highlighted the ‘old world’ metrics used by media buyers which do not easily apply to internet advertising - Demographics and Reach per $ Cost being most important. He went on to say that media buyers found it difficult to put a measure on Relevance and Context (things where the internet and telcos can score highly) and that operators could add value by providing standard metrics for these things.

I felt that some of the operators in the room used this as an excuse for inactivity. “We can’t generate value from ad-funded content because the advertising world won’t engage - the operator can’t do everything on its own.” Absolute rubbish. Advertisers engage and pour money in where they see value. Google, Yahoo!, MySpace etc. create value and advertising dollars follow. Operators cannot expect their customer to creat the market for them - they have to do the hard bit in order to benefit - you reap what you sow. Rory intimated as much by reiterating the value-in-customer-data theme that Judy and I had spoken about. He felt that contextual data about location, time, product purchase etc. could be used to better understand what the customer wanted and also their lifetime value.

Rory also talked about the need for standardisation in delivery methods and platforms. This was something that was picked up by Steve Shine, Senior Vice President and General Manager of EMEA at Sybase when talking about the Avantgo solution in the afternoon. He explained that Sybase originally bought Avantgo for a piece of technology related to another part of the business and are only beginning to realise the value of the company now. In the early days, they nearly killed the golden goose by being too closely tied to the Palm platform. As people moved on to new platforms the customer base dwindled. They now have a solution that is largely platform independent with 1500 content channels, the ability to create personalised channels via RSS and contextually relevant advertisers. It was clear that these guys really knew this market. Interestingly, Steve directly challenged some in the room from operators who clearly felt that giving away services for free to users dumbed the service down and resulted in lower value customers. He echoed Jim Holden from Google’s presentation on the first day about giving away value to users to create value from advertisers - grow that loyal customer base. He explained by offering real value users are flocking to Avantgo and the company can now actually charge providers who want their content listed! This really was a shock to operators used to paying through the nose for content. I will blog more extensively on my experiences with Avantgo in the next few days.

John Riordan, Senior Consultant Manager at Swisscom Innovations, picked up the CRM theme too. John has clearly been thinking about advertising as a new or incremental revenue source for some time. He talked about the operator potentially managing the customer’s profile and providing an number of support services to advertisers - including ad tracking, measurement and billing and payments on mulitiple platforms - TV, Web Search, Mobile etc. Advertisers would pay for information about customers and access to them - enabling the operator leverage their customer relationships and billing platforms. He raised some of the data protection issues (the need for customer opt-in) but created a very plausible case for a sustainable position for the operator in this market.

We had a very interesting demo from Richard Marshall, CTO at Rapid Mobile. He showed off their new product, Ad360 which provides interstitial advertising on mobile phones. When users click on an content link then contextually relevant advertising is popped on to their screen. Click-throughs and fulfilment rates can also be measured. Many who had felt the business model changes being proposed thus far in the day were too radical, found this simple and practical solution much more palatable. Here was something that they could do in the near-term to trial advertising. This theme of the need to trial and learn about the market came up strongly when discussing next steps.

To round off we had Falk W√∂hler-Moorhoff, Senior Business Consultant, Innovation, at Detecon Consulting giving a blue-sky talk on P2P TV and how this content distribution model could change the cost model for operators. Falk argued a strong case but, unfortunately, there were too many marketers in the room who didn’t “get” the customer proposition. I suspect that if we had had more network ops and finance people present they would have seen the potential value of the solution.

All in all, a good day and one in which I learned plenty. I think what it showed was how new the concept of advertising-funded products and services is to operators and how hard it will be to change the current thinking about:

  • Where value lies (user data and attention NOT network)
  • Who pays (advertiser and upstream companies NOT downstream users)
  • Free services are NOT bad/low value/dirty but create value

We had a vote at the end on “How confident are you that operators can carve out a sustainable and valuable position in advertising funded content?”. I am was pleased (and surprised) to find that over 50% were either Confident or Very confident that operators would achieve this. To my mind, the jury’s still out.

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October 8, 2006

In Telco 2.0, nobody “owns” the customer

No doubt there will be lots to say about the successful Telco 2.0 event here over the next few days. Anyone wanting some initial insight into what went on should check out James Enck’s summaries of day 1 and day 2.

One thing that’s worth sharing again is our defintion of Telco 2.0. Put simply, it’s a world where the user drives the selection of connectivity, device, and services. For Enid Blyton fans, users feel it’s more like the Land of Take What You Want than Dame Slap’s School for Naughty Children. (Telco 2.0 network operators are thus advised to stay well away from the slippery slip and also avoid toffee shocks.)

To illustrate the trend, we performed an analysis of 19 “pinch points” in the value chain for mobile network operators. Some of these are small items like whether the user can change the home page in the browser (and who sets the default). Others are larger and more qualitative things like the power of branding over the user. We then looked at the balance of power between the operators and the “edge” as represented by the handset vendors; and the relative power of the users and the vendors collectively. This is what we found:

There’s a sigificant weakening of mobile operator power in progress. The position of handset vendors is strengthening, but it’s the user who is increaingly in control. The locus of power is shifting.

A few words on the methodology. Obviously the value network contains more than just network operators and handset vendors. A more comprehensive analysis would look at the full spectrum of aggregators, retailers, content providers, advertisers, and so on. Profit would be expected to follow where the bottlenecks lie.

The underlying process works as follows. Taking “brand” as an example pinch point, we choose between the following statements (or positions inbetween):

  • To the extent the user takes account of branding, the operator brand is everything: the user will accept any handset they’re given.
  • Likewise, the handset vendor brand is everything: the user will disregard who the operator is in order to get their choice of handset.

This gives us the core/edge balance. Similarly, we look at the following pair of (extreme) statements and choose the appropriate place on the scale to determine the overall balance between users and the vendors:

  • Brand is everything to the user: they will disregard everything else, including function, in order to access the brand of choice.
  • Brand means nothing to the user, who relies on functional properties of the product or service alone in making their purchase selection.

We also did a similar analysis for fixed operators, and it looked even grimmer, with the profit pool evaporating into consumer surplus.

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

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