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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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