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November 29, 2006

Licensed spectrum: saviour or false hope?

We’re really enjoying reading the qualitative feedback from our survey. One recent comment from the chief architect at a major European pure-play mobile operator has stirred some internal debate at STL headquarters. In responding to our agree/disagree on James Enck’s Ten Things I [the investor] Hate About You [the operators], he says:

I agree with most statements for a fixed telco. I do not think they apply equally for a mobile operator. Mobility is built using licensed spectrum, which is mastered by mobile operators, and no one else, certainly not by Yahoo, Skype etc.

This is a common view held across the mobile industry. It is clearly true to a degree — and certainly from a historical perspective. The question is to what degree, and how strong a force is licensed spectrum in keeping the mobile ecosystem closed and controlled going forwards?

In answering this question, we’d pick five issues:

  • Is licensed spectrum going to remain scarce and without realistic alternatives?
  • Are the divisions between wide-area and local wireless networks going to persist?
  • What is it the users really value in their mobile communications devices, and are these functions dependent on the spectrum gatekeeper?
  • Even if the bottleneck exists, is it of any value?
  • Are the growth areas in communications bottlenecked by wide-area network owners?

Our belief is that whilst licensed spectrum remains a barrier to entry, it is increasingly wrong to assume that this is going to result in strong shareholder returns.

Supply and alternatives are increasing, depressing the asset value

Firstly, there are spectrum reviews underway in key markets such as the USA and UK. The EU is looking into spectrum liberalisation. Considerable amounts of prime UHF spectrum are likely to be released within the next few years. CDMA450 offers a number of interesting prospects. The mid 2GHz area is being slowly filled. Technology in the high-frequency point-to-point domain continues to improve. Tradeability and flexibility of spectrum use is likely to increase. Free riders like broadcast TV are being questioned hard on whether this is a good use of the airwaves. In other words, supply is increasing, and all other things being equal that depresses the price and strategic value of the asset.

All this is before radical new technologies like mesh networking come along. Deep-pocketed players like Motorola and Intel are betting on WiMax, and between them know how to make the silicon and electromagnetic voodoo work. There are plenty of people with an interest in weakening the operator hold over distribution.

There are also MVNOs run by large fixed operators like BT who are strongly incentivised to use their long-running contracts to suck value out of the mobile system and return it to fixed network operators.

FMC makes Wi-Fi a more viable competitor to core revenues

Secondly, there’s a huge amount of effort going into FMC solutions. These take out the airlink-layer issues of multiple network technologies. There are existing and unannounced companies working on solving the provisioning and roaming problems. Then the arbitrageurs like Truphone are moving in to re-skin the devices and change the balance of power, redirecting the users to non-operator services when Wi-Fi is available.

The users value mobility, but not at the expense of everything else

Next, it isn’t obvious that mobility per se is the #1 thing that users always care about. For teens, it is as much the privacy, personalisation and social status of mobile phones as the ability to communicate from anywhere. Indeed, as those youths are increasingly confined to controlled indoor environments where WiFi will be a free alternative, the relative premium of mobility is likely to decrease. If the three key mobile web needs are indeed now, new and near, only the last is truly mobility-centric.

Market events suggest the value of the walled garden is approaching zero

Even if the licensed spectrum bottleneck exists, the recent market moves with 3 in the UK with the X series, as well as T-Mobile’s earlier Web’n’Walk product, suggest that the market is moving towards a more open Internet-centric structure. A tollbooth without a fence is just a folly, not a turnpike. Users can walk around it.

The growth is in personal-area devices

Finally, as the Chief Software Architect of Motorola, John Waclawsky, put it at the last Telco 2.0 event, the value is migrating from wide-area networks to local-area ones. The next wave of value creation is in local access and communication, particularly with billions of devices and artifacts that have not yet been widely networked (e.g. iPods, watches, wallets, key fobs, etc.). This reflects out earlier post on the GSMA’s near-field communications efforts.

All in all, we say that the licensed spectrum point of control is not as strong as operators would like to believe. The bigger picture looking at all the control factors in the value chain isn’t any better. The result of this belief in the existence of a competition-repelling force field is widespread complacency about the need to re-think the business model.

By the way, we’re pushing on for 500 responses (thank you!) — but if you haven’t done so yet, go complete the survey before is closes this Friday. Only those who fill in the survey (and not just your name and email address!) get posted the results. 10 minutes well spent, I promise.

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November 28, 2006

GSMA and networks of compatibility

The GSM Association has recently conducted some research on which services users most value. We’ve taken their headline list of ranked services and added our own spin. We’ve categorised the types of services being offered (“chatter”, information, content or transactions), and what parts of the value chain are the operators involved in (service promotion/portal, service delivery, data pipe charges, and payments).

Operator roles in value chain
1Text messaging (SMS)Chat
2EmailChat + Info(✓)
4Alerts via SMS/MMSInfo(✓)
5Instant messagingChat(✓)(✓)
6Web browsing and searchingInfo
7Location-based servicesInfo
8Mobile radioContent(✓)(✓)
9Financial transactionsTransaction(✓)
10Downloading contentContent
11Mobile TVContent
12Video callingChat
13Video sharingContent(✓)

(Partial or optional involvement is in parentheses; no doubt hours of pointless debate could be had on some table cells.)

Our take away is that content continues to not be king. Hopefully you knew that already after the roll-out of 3G data and the public’s consistent failure to find expensive packaged entertainment a better way of passing time than just calling a friend. The most elevated purpose of any human communication system is chatter and gossip.

The operators are also embedded across the value chain. There’s an opportunity to extend the portal part into general search, as well as extend the reach of the payments into more services.

The real question is so what? for industry associations like GSMA. They have recently announced a collaborative operator effort for near-field communication (NFC) standards. We think that this is a smart move.

Thus far the tendency has been to focus on networks of connectivity first and foremost. This is clearly a necessity, and most of the work of GSMA and 3GPP has focused on the business and technical issues here. Yet the networks themselves are capital-hungry beasts which are hard to differentiate. Furthermore, the weakening of vertical integration is eroding the benefits of network ownership. Google didn’t need to buy an inch of fibre before launching the world’s most successful networked service.

The next phase has been defining networks of interoperable services. Unfortunately, this results in the following user experience problem:

Expensive, fragmented and limited solutions, based on products created by committee with little user input. Can you imagine the Internet with a menu of just four services? Me neither.

This track continues with the current 3GPP2 efforts to define new IM and real-time services, and features like multimedia ringback tones. Operators will deploy these, some successfully, but the standards effort seems disproportionate to the rewards. Advanced communications functions are increasingly adjuncts to other services like dating sites or photo sharing. Furthermore, the operator desire for differentiation tends to weaken the interoperability argument. We can barely agree on a dialect of SIP to talk, let alone what the messages actually mean.

The real opportunity lies in networks of compatibility, and the NFC example is a good one. In this case it hooks into the billing and identity assets of the telco, and sidesteps the dumb pipe problem. We’ve seen other such networks before, such as Bluetooth. With a bit more vision, openness and business sense, Bluetooth could have been a bigger money spinner. For example, for a fee merchants could have been able to download new signed profiles extending the device capabilities. Or, for a fee, you could access the SIM card authentication.

Future examples could easily revolve around part-pieces of service delivery, such as presence. Without defining the whole service definition, the GSMA could help operators to publish “push” presence data (“I’m in a call!”) in standard formats and with low-friction business models for partners spanning multiple operators.

What we like about the GSMA is its business-centric outlook. It has a far better chance of success in creating new business model extensions for carriers than a technology-driven services world of IMS, particularly if it keeps adding new columns to the table for operator business activities.

There are other types of networks too, such as market-makers. Naturally, we’ll delve into more detail about the different types of networks and network effect in our next Telco 2.0 Insider.

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November 27, 2006

Boost Your Share Price with a Telco 2.0 Strategy

Warning: The following does NOT represent investment advice. Past performance is NO guarantee of future success. Before investing in any stocks, we recommend you speak to your stockbroker or independent advisor.

We have often held up BT as a great example of a Telco that is ahead of the competition in moving to a Telco 2.0 world. Similarly, whilst pointing out the competitive threats from muni-nets, James Enck has praised KPN for its reporting transparency and Telco 2.0-style ‘Pipe’ strategy with its Direct ADSL tariff.

I thought it might be interesting to see whether the Telco 2.0 strategies adopted by these incumbents have been borne out in stronger share price performance over the last 2 years. I selected 2 other traditional incumbents: France Telecom and Deutsche Telekom, as well as Vodafone from the mobile world. Vodafone, although it has a stronger mobile bias than either FT or DTAG, does have similar scale and has been associated with a strong Telco 1.0 strategy.

For reference, I also added the internet player and stockmarket darling, Google.

The results are very interesting:


Looks like a very clear split between the Telco 2.0 duo and the Telco 1.0 brigade! I did a quick check by also looking at Telefonica and Telecom Italia. Telefonica falls roughly half-way between the two camps and Telecom Italia tracks the Telco 1.0 group.

Now it is very different to distinguish between ‘fundamental’ (operational and financial) drivers of share price and non-fundamental drivers such as bid rumours. Rumours about private equity takeovers of some of these companies have been circulating for a while and have clearly affected share prices. It was for this reason that we specifically excluded TeliaSonera from the analysis.

However, overall it looks like investors like what KPN and BT are doing. Key question for investors now, I suppose, is whether to keep investing in the Telco 2.0 duo or buy the out-of-favour Telco 1.0 players and hope they move quickly down the Telco 2.0 route.

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November 23, 2006

Only 18% of industry confident about future of Telco Operators

We ran an instant vote at the end of Day One of the Telco 2.0 brainstorm in October about confidence levels in the ability of telco operators to create a sustainable future for themselves in an increasingly IP-based world. This was a gathering of leading thinkers and practitioners. We’ve been testing this since with a broader sample of 250 people around the world via our ongoing online survey. The ‘good news’ is that we’ve moved from 10% to 18% of people confident about the future. The bad news is that still leaves 82% who are not confident or unsure.

Survey closes 1st December - have your say on this, the timing of key ‘Tipping points’, and other issues here. 15 minutes investment gets you a free summary of the report in December. Tell your friends!


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November 22, 2006

Ten things to hate about Internet services

This is a jointly edited guest post by the Telco 2.0 team and Keith McMahon, who writes incisive insights over at Telebusillis. Keith strongly feels that network operators are not putting up nearly as good a fight as they could or should be doing in competing with Internet services.

Last month, securities analyst James Enck gave a hammering list of reasons why investors are shy of putting their money into telecom operator stocks. Whilst telcos need to play to their strengths, it is where those strengths are opposed to weaknesses in the Internet players that the biggest opportunities can be seen.

So here are Ten Things to Hate About Internet Services. Some of these problems are derived from issues with the Internet’s architecture, many are about the businesses built on top of the network.

Hard to pay for access and get provisioned. You visit some friends, a client’s office, a coffee shop, an airport lounge. Every time it’s a new challenge to get online. Telco opportunity: take the pain out of payment and provisioning. When you sell a service, make it work every place and device the user needs it, regardless of which network they’re on. Consider the complete user experience, not just the online service delivery.

Beta releases as an excuse for low quality. Why are products rushed out to us guinea pigs? Why are products unstable years after release? How much commitment is there to maintaining and developing each product? Telco opportunity: it’s OK to make rapid incremental innovation, but make your brand stand for services which are complete, solid and integrated.

Proprietary solutions masquerading as open ones - The major applications are “open” only to the extent they provide a trap-door into their closed worlds. MSN IM, Skype, Flash, Google search. Interoperability just does not feature in these companies’ dictionary. Telco opportunity: be more open than the Internet players, and create bigger network effects and more attractive platforms.

Lack of clear ownership of user-generated content - Who owns this entire user created content? Why can you not move it from platform to another? Why can you not back it up? Telco opportunity: be more user-centric than the ‘roach motel’ Internet portals and services. It’s not just “don’t be evil” — be positively angelic. Make portability of data and identity a virtue, not an imposition.

Small feudal kingdoms, capriciously run. Ever built a business on eBay and been thrown off? Where do you complain? Ever been a non-US citizen and wanted to resort to law to protect your rights? Telco opportunity: Don’t just create services, but also the social institutions to support them and regulate their (ab)use. Build true public spaces, not private Disneyesque facsimiles.

Poor multi-language and localisation. Why is multi-language support a second or third or fourth thought? Why does living in California make you feel you understand every global culture and how to service it’s online needs? Telco opportunity: go “glocal” better than the Net — globally available services, tailored to local needs.

Spam, viruses, phishing, 409 scammers. The attitude seems to be a big shrug. Do we see any of the big companies who are making huge profits take a little social responsibility and clean up the Net? Telco opportunity: sell your products based on security, not features.

A new site, another identity. Why do we have to enter usernames, passwords, address, date of birth, and credit card details everywhere we go? Won’t anyone step up to the challenge of providing a real identity solution? Telco opportunity: spread the ability to authenticate using SIM cards, phone numbers, or account credentials to more applications, and be a market-maker for exchange of identity data. What Verisign does for assuring the ownership and identity of servers, telcos can do for users. What Paypal does for hiding your bank and credit card details, telcos can do for the whole of user identity.

Lack of support. If a support line exists, expect the details to be well hidden. Why is deemed completely acceptable never to answer emails, or to promise a response “within 20 working days”? The culture of “free” means you too often get what you pay for. Telco opportunity: focus on the things people truly rely on and care about, and make the quality of the support a differentiator. Make service delivery promises and keep them, don’t hide behind weasel terms that no service guarantees exist.

Advertising everywhere Why are my eyeballs continually polluted? Why is there not a clean option? Telco opportunity: position yourself as the premium alternative. Help users understand the real cost of ‘free’. Let them TiVo the web, skip the ads.

We’re on a roll, so here’s a bonus ball:

The real cost is hidden You have to supply your own equipment, draw on the technical support of friends, spend time researching what applications are compatible with which devices and peripherals and OS. Telco opportunity: take responsibility for making the pieces work together, and market the simplicity of the end result.

There are other analyses of the Internet’s woes, and other prescriptions on how to fix them. In any case, the message to the telco world is straightforward — the Internet world is far from perfect. Instead of thinking of embracing it or surrendering to it, use your own strengths to develop services which improve on the flaws of the current Internet world and solve real user needs.

We will be exploring these issues in more depth in the next Telco 2.0 Quarterly Report, for more details see www.telco2.net.

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Digital Students - How to extract value from this market?

Yesterday I met with Peter Miles, CEO of Sub tv media - a remarkable ‘media’ company with much that telcos, brand advertisers and others in the value chain can learn from.

Their market is the 2.2m higher education student market in the UK - ABC1 18-24 year olds with a spending power of £20 billion (GBP) per annumn (of which £1bn is on mobile phones). Sub tv have secured exclusive 10 year service contracts with 95 institutions across the country, representing 85% of this market. They provide a golden combination of:

1.) Broadcast services straight into student bars and rest-places: Nests of plasma screens with forward-stored tailored content, VOD, and regular TV delivered over ADSL and managed via a PC console. Free for the university, funded 100% via advertising, configurable by student entertainments officers.
2.) A mobile phone service, ‘the only one just for students’, with some unique tariffs vs regular operators, sold via on-campus sales teams.
3.) An ad-funded online portallinking the two together, with a strong emphasis, of course, on stimulating user-generated content.

This market is highly attractive…
* It represents 32% of all 18-24 year olds in the UK
* 70% are from ABC1 households
* 87% have moved away from home to study
* 40% of 18-21 year olds leisure time is spent in the union bars
* 30% of the audience is “refreshed” annually
* The average student spends £10,000 per annum (total market = £20 billion)
* 30% of the audience is “refreshed” annually
* Most students enter university as pre-paid customers, but leave on contracts
* Many students start life-long brand associations while at university (newspapers, banking, etc)

…but they are a very difficult to reach through conventional channels.

But with its the broadcast services alone, Sub tv can offer the twin pillars of nirvana to advertisers - Reach and Frequency. This is because 1.155 million students visit their union bar on average 3.2 times per week; they spend approximately 2.5 hours in the bar per visit; providing a net OTS of 4.878 per visit. So, as a result, Sub tv has become a major media channel for many brand advertisers.

Sub tv is proving successful because it has made sure, through constant ongoing research, that it deeply understands what motivates its customers. Through getting its content and services ‘instep with the rhythm of student life’, as Peter terms it, they have built up a trusted relationship with their audience with their entertainment, communications and information services.

As a result, they can, for example, design and time student-specific programming effectively. Wednesday is normally match day, so in the evening they stream results of inter-university matches to the bar from 6-7pm. Students are very open to promotions, but they must be targeted and provide instant gratification. So, ‘tonight only’ the first pint of Guinness is free via an SMS promotion to those who fit the right profile (they and Guinness know that once you start off an evening drinking the black stuff, you don’t switch to lagers/bitters). Then, at the weekend, it’s ‘Britains Sexiest Student’ - submit your photo via MMS and vote for your friends via SMS. Next there’s Love Match… (Nothing like this when I was at college?!!)

Peter will be presenting his thoughts on how to extract value from the ‘Digital Youth’ market at the next Telco 2.0 Industry Brainstorm on 27-29 March. Come and meet him and find out more…

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November 21, 2006

The phone company’s beautiful children

Last week we proposed a rather gloomy assessment of the long-term trends that ultimately erase the value of the traditional phone company as a business. Voice interactivity is becomes a feature of applications and services users acquire from an increasingly diverse set of sources. The play closes with the body of the phone company slumped in the stage corner, the spotlight fading to black. There is no villain, no violence; the victim died of loneliness and old age.

However, this theatrical production need not be a tragedy, let along a farce. Instead it can be a complex mystery, with an intrigue of possibilities of mistaken and revealed identity. There are things network operators can do to transform themselves so that when time is called on telephony they have moved on already. The phone company is dead, but a smart telco will have ring-fenced that business a long time ago and grown a replacement identity. We think it is possible: telesalvation follows telepocalypse. And we’re not alone.

At the Telco 2.0 event last month the Head of Strategy at Belgacom, Matteo Gatta, gave a presentation with some intriguing possibilities. He raised the ambition of Belgacom being a supplier of contextual voice services. This should sound familiar: social, contextual and collaborative are our buzzwords. The trick he needs to pull off is to find those contexts which Internet players find hard to reach.

It isn’t hard to think of examples. Home and industrial security systems and alarms, kiosks, TV shopping, in-car, e-government initiatives, social care services, logistics management — the list goes on. Voice may be an enabler in each case, and a technically difficult thing to do well, thus demanding high network management and technology skills. The real key is that each involves a partner, sales and distribution ecosystem that doesn’t significantly overlap with the Internet players. A great deal of potential exists for all kinds of real-time communications solution sales to domestic users as well as enterprise customers.

There are probably hundreds of possible contexts for embedding voice away from the PC and Web. No telco can have deep knowledge of all these. Thus the business model evolves to being a business and technology platform enabler. These contextual services aren’t the only possibilities. For example, startup Tello has been struggling to federate presence between enterprises to speed up certain business processes. A nationwide, federated enterprise employee directory with privacy and access control is probably a business there to be snatched by someone with some entrepreneurial spirit. The phone company dies, but the Telco 2.0 offspring lives in considerable health. This is before we even begin to address bigger opportunities, such as helping those contextual social services go mobile with carrier-enhanced advertising.

All this could even give a lease of life to IMS equipment, although we at STL remain concerned about the cost and complexity of this technology. Indeed, technology is the easy bit. The hard part is building new solution delivery organisations and re-tasking sales and marketing groups to sell that. They need to get close to a non-traditional customer base, and possibly only have an indirect relationship with the end user (or at least shared customer ownership).

Overall it paints a very different picture to trying to eke out a few cents of ARPU from users by selling them relatively trivial software functions inside a big switch. There are only so many ways to bundle and price a triple or quad play product, none of which creates lasting differentiation. Yet a platform enabler would barely notice the passing of the telephony business — no worse than phasing out an inflexible old piece of software you have to interface with.

Looking more broadly, the purpose of voice is to connect people. If you see yourself in the “connecting people” business, then you draw your net wider than tip-and-ring telephony. For example, one of the attendees at the October Telco 2.0 event in London, Lee Dryburgh, is a telecom consultant doing his PhD at University College, London. He’s looking at tackling some of the hardest identity and privacy problems of connecting people in real-time. For example, when you walk into a hotel, shouldn’t the reception desk temporarily appear at the top of your buddy list? Now imagine you’re a telco helping to broker this relationship in the post-metered minute world. Today it’s a research project, tomorrow it’ll be a billion-dollar business. If you want to learn more, go to ConnectionCommons.org and contribute to the effort!

The centenarian phone business has been a wonderful story, but its coming to an end. Rather than mourn, we should celebrate its lively sequels.

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Telco 2.0 Survey: Corporate Strategies

The number of respondents to the survey continues to tick up - 240 of you have have done it so far.

A couple of questions relate to strategies for the Telco 2.0 world. We share a couple of charts outlining 4 corporate strategies together with the key success factors for each. We then ask participants to choose one operator and select which strategy they are currently pursuing and which would be the optimal strategy going forward.

It is quite revealing to see which companies have been chosen by the 180 people that have answered these questions (see chart below). Many participants have opted for the big guns - like Verizon, Telefonica and Vodafone and the Telco 2.0 market leaders like BT. Surprisingly few have selected Deutsche Telecom and T-Mobile - where are the Germans?

The following (big) companies, amongst others, also seem to be under-represented:

  • O2; Telecom Italia; SFR; 3; AT&T; Cingular; Sprint; Bell Canada; Rogers; Telenor; KPN; All Asia-Pacific operators

I am not sure the reason for the small number of responses on these players:

  1. Perception that they are Telco 2.0 laggards? Seems unlikely with 3 and Rogers in the mix
  2. Skewed location of Telco 2.0 readership? Certainly this is true with the Asia-Pacific players but I am less convinced about the lack of response for the European and North American players in the list above
  3. Language issues - can’t understand the survey? Possibly, but unlikely to account for the German companies weak representaion

Whatever the reasons - would be great to get input on some of the names above and participants get the results…


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November 19, 2006

BT vs. AOL: telco wins at vital service delivery

As a small (growing fast!) business, we’re interested in value-for-money basic IT services. One of these is an online backup storage service. I’ve been testing AOL’s Xdrive service and BT’s digital vault. Both are aimed at the domestic/SoHo market.

The outcome is rather interesting, and neatly illustrates where telcos can out-service Internet players.

At first AOL’s offering looks very attractive. 5Gb of free space, with a backup utility to download for free. Let’s just say that the first real-life test of AOL’s service is less than wholly impressive:

4 files out of 185 were successfully uploaded. No additional files or folders can be added to your account because you do not have enough available space. Delete files from your account or upgrade to get more storage space. Error Code: 2162.

Not enough space? 52 Mb of 324 Mb transferred before bombing out, and that should still leave well over 4Gb spare. This is a service you’re supposed to be entrusting your data to as your last line of backup. Checking the forums, it seems I’m not alone in having trouble — and the billing problems seem just as bad as the technical ones.

BT are closer to getting it right. The marketing states clearly up-front what the cost is once you go over the 2Gb limit (AOL’s offer has this nowhere in sight). The product actually works (I’ve tried it). There’s no confusing marketing of alternative services like photo sharing. The free product is supported — just call for help. Cunningly, BT Broadband retail users are given (after the launch period) a bigger free allowance than the general public. Bravo!

BT’s service isn’t perfect. It’s yet another identity silo (AOL uses a common screen name), and you can’t trial the backup service before paying. Plus, why not position double free storage as a bonus for BT customers, rather than having a mean asterisk and footnote to disappoint the rest of us? These are easy to fix.

The BT offering has a number of other things going for it. Their costs may be below AOL’s, as much of the data transmission will be on-net and they can put more of the storage nearer the users. The brand alignment is good — dependability, not features or content. They already have a billing relationship with many of the customers, so their acquisition costs and merchant fees are lower. It will help mollify churn in other broadband products, too, as long as they retain some kind of two-tier pricing structure. (This kind of pricing would have been a no-no before a real unbundling regime arrived, but now there’s plenty of retail competition, the gloves are off.) BT already have tons of data centre capacity and the incremental cost of managing some commodity storage is limited. Competitors are unlikely to be able to match pricing and margins.

It’s a great way to differentiate their broadband offering, particularly if in future the wholesale side supported the capability to have the backup traffic not count against the monthly usage cap.

If you work for a similar large telco, here’s the take-away. You need a realistic re-assessment of what your strengths are, and how you are positioned in the market. (Yes, we can help.) You then need to craft a strategy that gets you off the old conveyor belt of waiting for the network equipment vendors to pitch you the next phase of your business model based on some standards process that’s been years in gestation. (You know who to call.) They’re as worried as you are, and have to change too. Finally, your product and project pipeline management needs to be formalised to ensure that only activities that are aligned with the strategy get through. This probably means abandoning BOGSAT as your approval methodology for something more formal. It’s not just that there are too many parts in motion — it’s also that you need a methodology that can get to the right answer without anyone’s ego being bruised. People matter as much as process. At the end of the day, the good ideas will shine through — as clearly they have here for BT.

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November 16, 2006

Telco 2.0 Survey: 200 Respondents & Veeery Interesting Results

Thanks to the 200 of you that have participated in the first week. We are not going to ‘reveal all’ on the blog since the survey is still running and summary results are only available to those who take the trouble to contribute.

So, for example, I can’t tell you the consensus forecast for WHEN key Telco 2.0 events will occur but here is the current predicted ORDER:
Telco%202.0%20November%20Survey%20-%20timing.jpg Very interesting to see voice revenues falling to less than 20% of total revenues for a fixed operator forecast to happen AFTER things like mobile VoIP becoming mainstream. Remember BT currently generates only 8% of revenues from voice - though as a few of you pointed out, some of the line rental charge subsidises voice minutes.

I wonder which internet company is going to launch their mobile telephony service first? A few said it had already happened - have we missed something? (We don’t count things like GoogleTalk as a mobile service)

I am not going to comment on all these and I am sure individuals will disagree with the order. However, I am convinced that the order based on the views of 200+ informed industry insiders will be more accurate than a couple of smart analysts taking a punt!

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November 14, 2006

More Social Networking Action from Operators

The rush to embrace social networking by mobile operators continues with the news this week in The Times that MySpace is in discussions with the UK’s mobile operators about a tie-up. This is in addition to the expected announcement of a deal between MySpace and Cingular in the US.

2 Strategies - Organic vs Partnering

UK mobile operators appear to be pursuing a dual-strategy:
1. They are developing their own social networking sites, such as 3’s SeeMeTV and Kink Community (which has 50,000 paying subscribers and 350,000 postings a day) and O2’s LookAtMe where users pay 10p to download video clips created by other users.
2. The are exploring deals with established PC-oriented social networking brands such as Bebo, MySpace, YouTube and Second Life.

This approach makes sense. Even if the organic approach never develops, operators will learn valuable lessons about the drivers of value for the social networking phenomenon and, more importantly, pick up critical information about usage and behaviour in the high-value ‘Youth’ segment.

2 Business Models - User Charges vs Ad-Funded

It is interesting to see that in their own communities, operators continue to pursue their tried-and-tested business model of charging users. This approach is likely to severely limit the development of the community. The established brands have, with few exceptions, all gone for a free-usage model and are now seeking to monetise their millions of users via advertising. Brough Turner reveals some astonishing stats on a video download service that moved from paid to free on his Communications blog. Is this approach just a new version of the internet bubble of 2000-2002 where start-ups were valued on ‘eyeballs’ rather than revenue and profit? Although they have been over-hyped, it seems unlikely, given the successes of Google, Yahoo!, MySpace and others in generating advertising revenues, that the social networking business model is founded on sand.

So what should the operators do to make their relationships with these brands successful?

The most important thing is probably to make the interaction of their mobile subscribers with these sites as simple and friendly as possible. When working for Orange, I was always sceptical of the Group Customer Experience Director. I struggled to see what he actually did despite his claims that he “managed the end-to-end customer experience”. The problem he had, as far as I could see, was that there was always someone else in the operating company or in a group function who had responsibility for each section of the customer experience (sales, provisioning, customer service, billing etc), and his attempts to herd these cats were met with derision.

Well now is the time for the Customer Experience guys to earn their keep. Tomi Ahonen has explained in several James Joyce-style posts (and in the closing remarks at the Telco 2.0 October event) about the potential for mobile phones to be creators of user-generated content. If operators want people to use their mobile phones in this way, then the user-experience needs to be vastly improved.

To my mind the 3-click rule needs to apply. If I want to receive email on my phone it’s one click to get to the application and one more to tell my phone to pull mail from the server (no, I won’t pay for push email). For texting: one click to get to the application; one to click on the ‘To’ field; one to get to Contacts and one to select the recipient - this is just about ok.

So, if I want to properly interact with others in a social community using my mobile I need the following kinds of features and functions:
• Click to add a video to [insert name of social networking site]
• Click to send text/IM/email to community member(s)
• Click to vote on content by SMS
• Click to pay for …[avatar, video, music, etc.)
• And even, possibly, click to connect to customer service

Operators need to work hard to get these functions available ubiquitously. This is not practical by negotiating deals with social networking sites on a closed case-by-case basis. Open API’s are the only way that this can be developed widely. As we and James Enck have blogged several times, the open-API model is the best way of yielding real scale.

James uses Amazon as an example. On a personal level, a mate of mine set up Betfair a few years ago - a betting exchange based on the stock exchange where buyers and sellers agree the odds for bets. I asked him what enabled him to develop such scale so quickly and he told me that APIs were critical in enabling smaller bookies to upload their odds directly into the site. They provided the volume of cheap ‘lay’ bets which allowed Joe Public to back the outcome they wanted.

Clearly, operators can add (and extract) more value if the ‘open up’ more of their assets. Network APIs are the obvious starting point for voice and messaging. But equally important are APIs to interface with billing and payment mechanisms and customer service. Operators need to think long and hard about where and how they can add value and then develop a standard, open platform for the established social networking sites and apps developers to interface with.

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Death of the phone company

It’s 2.30am here in Helsinki, but my body clock is firmly locked onto Silicon Valley time. Sleep seems impossible, despite a perfunctory rest last night after arriving at the hotel at 3am. The alarm is anyway set for 5.15am to catch a flight to London, so maybe I’ll get a nap slumped up against another aircraft wall.

This hypothalamus abuse has served a good purpose, however. Jumping back and forth between the leaders in Internet and telecom, I’ve caught a glimpse of the future of communications. It shockingly lacks any involvement of a phone company as service provider, at least in any traditional sense.

Without betraying any client confidences, here are a few pointers.

On the flight over to America, I read Mobile Web 2.0. The title turns out to an an accidental pun, being a re-write of their earlier book Open Gardens — a 2.0 book on a 2.0 subject. It’s a comprehensive survey of how Web 2.0 technologies and ideas are driving the next generation of mobile applications. Notably, Web 2.0 is about people and social computing; Web 1.0 was more about e-commerce and putting users in touch with other computers to transact. If you’re feeling less than up-to-speed with what Web 2.0 might mean for telecoms, it should be on your Christmas wishlist.

We shamelessly jumped on the 2.0 bandwagon here at Telco 2.0 because making the Internet people- and communications-centric poses a direct challenge to traditional communications service providers, who need to up their game in response. We’ve already seen the meteoric rise of players like Skype, but these are maybe “Web 1.5” phenomena: an Internet facsimile of traditional telephony, with a new coat of paint and a calling card thrown in to keep in touch with the technorefuseniks.

In a sense maybe we should really be talking Web 3.0: the 2.0 made text social, and the next generation embeds all forms of media and real-time communications. Anyhow, regardless of the name, the next generation of communications is social, contextual and collaborative. Let’s take each of these in turn.

Social communications means that the system is aware of the multitude of relationships you have, and acts accordingly. That means your “address book”, for want of a better term, has not just people and phone numbers, but lists of contexts and relationships within those contexts. To take the canonical example, there could be a section titled “MySpace”, and your friends from that context are listed there. As part of that context, it may display appropriate presence-type information, which could be FAR richer than on/off — such as how many new comments/greetings are on their homepage blog. Naturally, privacy and availability controls are applied in ways appropriate to each context. The dating address book sub-section holds pointers to your hot prospects, who may choose to be unavailable during their working day.

The context also drives the communication. Take a simple example. Today, my smartphone will sync with Outlook, and display a list of next appointments. When I click on one, it gives me the details. In principle, I can call the meeting organiser, perhaps to say I’m running late. Yet she won’t see a subject line of “2.30 Sales Pipeline Meeting” as part of the inbound caller ID, because the current telephony system doesn’t convey context. Furthermore, users will not have to switch contexts to communicate, as happens today on the PC when you click the “Skype me” button and flip to the softphone.

Finally, the experience is collaborative. Today’s softphones are anything but soft: the user interfaces are fixed, and don’t vary with the context. There’s nothing much I can do at my end that controls what you see at your end. At best, in an IM tool I can send you a file, maybe paste a URL into a chat window, and hope you click on it. Telephony is supposed to be a substitute for being there in person, be we can’t gesticulate, annotate, or review together. I want to be able to share the snaps of the kids with their grandparents, and flick through them together — remotely — whilst making my commentary.

These things exist today as point solutions, but not as part of a thought-through generic communications system. In a collaborative environment, any media becomes immediately shareable, and the shared space spans the screens and audio outputs of many users. Furthermore, the collaboration can easily move across contexts: it becomes trivial to share a cool video with one of my dating chat-up targets, without having to exit to IM or email to send a pasted URL — or even, indeed, knowing those personal contact details.

Now for the mind bomb.

There will be a custom communications experience generated dynamically for every context, and it may be personalised for the individual communicators.

You’ll have to work out the rest yourself, I have to stop there.

This totally breaks the mindset of the telecom product development process. The idea of defining universal, common, interoperable services standards and tying them to specific network operators won’t work any more. Mobile IM is probably the last round of this game — the real test of strength between the Internet and telecoms. Talk is truly just a feature of a thousand other applications.

These phenomena will probably emerge from the PC first, but the transition to mobile devices is also inevitable. The only question is of timing. These new capabilities will take us “beyond VoIP”, and create true new end-user value. There is no evolution path for circuit telephony, no IMS-powered feature that will maintain parity. It’s all over, bar the wait for the awful sound of the death of Bell telephony as a business. It doesn’t go away as a human activity, just you can’t charge for it any more. It might be two years away, probably five, definitely less than ten.

Here’s the sting. It’s the owners of the social contexts in which people meet and collaborate who will define and control the communications experience. With a few exceptions, such as Cyworld in Korea, network operators aren’t part of the picture. At best they might be able to sell some enabling platform capabilities to the media and Internet companies who will dominate this space.

It’s time to go back to work and re-read your business plan. Wake up to the change ahead, don’t be caught napping.

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November 13, 2006

Telco 2.0 Survey Update

We seemed to have stirred up a hornet’s nest since we launched the Telco 2.0 survey last thursday. There are some very strong views out there and one or two of you have got rather irate. Hopefully, the ramblings below will calm you down.

  1. 142 of you have completed the survey in the first 4 days (thanks) - although a handful have only put their contact details in and not actually answered the questions. We can’t be fooled that easily - you reap what you sow - summary results only to those that complete the survey.
  2. Most of you have written at length in the optional questions explaining your thinking. Here are some of the most amusing quotes to date (serious ones to follow later):
    • On reasons for response to statements about industry change: “I read telepocalypse since the first post in 2003 and my thinking has been influenced like cocaine and my answers are based on what i grasped from there.”
    • On the single biggest sign of change in the industry: “When my tech illiterate mum and dad call me on a voip phone with their new broadband connection (maybe 1 or 2 years away)” and “Sorry, no time to complete, I hope I have contributed with previous questions.”
    • On response to James Enck’s point 10 of his ‘10 things I hate about Telcos’ (Maybe the entire foundation is wrong. Broadband connectivity is not a product from which individual companies should prosper. As something which develops local self-determination and social interaction, it should be driven by local communities.): “Since when was selling a universally needed product on a local monopoly basis a bad business? Boring but not bad.” and “#10……are you HIGH??????? Letting communities try and integrate telecom?????? “
    • On reason why CONFIDENT that Telcos could achieve sustainable growth in a Telco 2.0 world: “They surely can’t all get it wrong.”
    • On reason why UNCONFIDENT that Telcos could achieve sustainable growth in a Telco 2.0 world: “Zero evidence that they’ve even noticed the underlying changes.”
  3. We are not out to “knock” operators, as one or two of you think. In fact, we believe that many operators have done a superb job over the last 3-5 years in creating value. We just believe the world is changing and that the business models that worked in the past will be less successful going forward. Rather like dispassionate investors, we are focused on future prospects, not on past achievements. Unlike investors, we seek to work WITH players in the value chain to improve their prospects. Hopefully we have shown with this blog, our events and our consulting work that we seek to build not tear things down.
  4. We are not asking for you to like us but easy on the abuse. If, as one or two of you think, we don’t know what we’re talking about then an easy way to avoid us is not to read our blog and complete our survey.
  5. The winner of the most arrogant remark goes, unsurprisingly, to a fellow management consultant (who had better remain nameless). When asked in an optional question for the reasons for his responses to James Enck’s “10 things investors hate about Telcos” he says “No. people pay me money to explain why most analysts don’t really understand what is going on, except to whinge that telcos are dumb.”. Interesting that he is talking about an analyst who is one of the top stock-pickers in the world, has forecasted several industry events (included BSkyB getting into broadbad) and recognised by many within the industry as a leading thinker!


SURVEY LINK: http://www.surveymonkey.com/s.asp?u=792902827806

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November 9, 2006

Programme for Telco 2.0 Industry Brainstorm, 27-29 March 2007

Having debated intensely with our organising committee, we’ve now designed the programme and broad agenda for the March 27-29 Telco 2.0 Industry Brainstorm (see diagram below). The website will be up soon, and we’re now approaching our short-list of top-class stimulus speakers.

If the aim of the October brainstorm was designed to test the hypotheses in our Telco 2.0™ Market Study and create a strong community of interest, the event on 27-29 March 2007 in London is designed to get the industry to consider end-user needs much more clearly and expand this community of interest to others who should be involved. We expect 250-300 leading lights from around the world to participate.

So, as you can see below, we’ll be looking at strategic business model choices in a Digital world. As part of this we’ll be debating if value is primarily in the network or on the edge; if ‘QoS’ as currently defined and defended is an irrelevance; and how to deliver value to/extract value from: 4 key en-user market sectors: Digital Youth, Digital Homes, Digital Towns, Digital Workers. We’ll look at what services and NGN architecture is needed to support the above, with lots of case studies and some demos.


Why bother? The problem facing the industry was starkly articulated when, having heard stimulus presentations from most parts of the value chain - Investment banks, VCs, Incumbent Group Strategy Departments, Regional Mobile Operations, Regional Fixed Operations, ISPs, Media Companies, Internet Players, EU Regulators, Trade Associations - we asked participants in the Telco 2.0 plenary session to vote on their levels of confidence in the ability of operators to create long-term sustainable growth in an increasingly IP-based world. We got this reaction:

Telco 2.0 Industry Brainstorm, 27-29 March 2007 - Structure:


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Telco 2.0 Survey

Roll Up, Roll Up - Your Telco 2.0 Blog Needs You!

We have carried out a couple of surveys on IMS over on our more technically-focused IMS Insider blog. Now we are conducting a survey on what Telco 2.0 means for today’s operators with you - the aficionados of Telco 2.0.

The survey can be completed on-line in 15 minutes and covers:

  1. Telco 2.0 - Is it a threat of opportunity for Operators?
  2. Investor views of Operators per (wunderbar equity analyst) James Enck’s presentation at the Telco 2.0 October event
  3. Timing - when the Telco 2.0 tipping-points will occur
  4. Telco 2.0 Operator strategies
  5. Execution - what’s going well and badly and what the barriers to change are.

Good News!!

There are 4 of our beautiful charts embedded in the survey for you to peruse and comment on which will challenge your thinking, these are:

  1. How the Telco industry is changing
  2. Potential Operator strategies
  3. Key factors for successfully executing the strategies
  4. A delegate poll at the Telco 2.0 October event on whether Operators will be successful in a Telco 2.0 world.

Better News!!!

Every participant will receive a free summary copy of the results.

In previous IMS Insider surveys we had 200-300 respondents from across the value chain and so were able to conduct some very interesting (and statistically significant) analysis.

Don’t Miss Out!!!!

This offer closes at midnight (or whenever I stop work) on Friday December 8th.

Here is the link again: http://www.surveymonkey.com/s.asp?u=792902827806

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November 7, 2006

IPTV via the Edge or the Network?

An important hot off the press piece here reminding us again about how value is moving increasingly to the edge of the network. In this case Microsoft announcing that it’s new XBox 360 will offer HDTV and HD movie downloads for rent or sale.

We’ll be releasing the details of our next Telco 2.0 Industry Brainstorm programme for 27-29 March (London) later this week. The news above is perfect context for a need for telcos to think MUCH more creatively about their role in the value chain. And quickly. Hence the brainstorm.

When we describe these ‘edge’ developments at our in-house workshops we often hear telco execs respond “Well, at least they’ll be using our pipes, that’s fine by us. More broadband take-up…” At which point, of course, we describe the ‘Broadband Incentive Problem’ (beautifully elucidated in a hot breakout room at the October Telco 2.0 event by John Watlington, participant in the MIT Communications Futures Programme and Principle Research Scientist at France Telecom’s R&D iLab in Boston.

This is pretty critical. Here’s our take on it (as a sneak preview of the Day One theme of the March Industry Brainstorm):

There is a fundamental challenge to network operators as they hurtle rapidly towards a ‘Telco 2.0’ world:

Who finances broadband access networks? End-users, municipalities, content providers, merchants, advertisers?

Broadband is heralded as the golden growth opportunity for fixed and mobile telcos and a driver of economic and social well-being for local and national communities.

However, recent studies of the advanced markets in Japan and South Korea are demonstrating that the costs of providing broadband access rise faster than revenues.

This leads to a.) an unsustainable business model for network operators and b.) causes them to be a bottleneck in many internet value stacks with major repercussions for all parties.

This is driven by five key trends:

- Growth slows as the broadband access market saturates
- ‘Flat-rate’ pricing models continue
- Inability to capture enough value-added services to cross-subsidize
- Per-subscriber usage increases, possibly significantly
- Bandwidth costs don’t drop as fast as usage rises

This problem will soon heavily affect fixed line operators, cablecos and ISPs in most of Developed Markets and mobile operators too as they increase adoption of HSPA and 3G.

The key questions, then, are:

- How can we provide a return on network investment without discouraging innovation by users?
- In the short term, what are the alternatives to ‘flat-rate pricing’?
- What architectural changes are needed to the internet?
- How should we think more creatively ‘downstream’ (about users, communities, and municipalities) as well as ‘upstream’ (content providers, merchants, and advertisers) to develop more sustainable business models?

While these issues are being considered operators need to develop strategy on two fronts:

- How can we drive revenue?
- How can we reduce cost?

On the Day One of this Industry Brainstorm we will be looking at the broad strategic approaches to a.) driving revenue and b.) reducing cost. Stimulated by specially commissioned presentations we will decide which strategies and business models are likely to be most ‘Telco 2.0’-compliant.

On the Day Two of the Industry Brainstorm we will look at the issues in much more detail from the end-users’ point of view. We will split into 4 workstreams looking at:

1. Digital Youth (the critical 16-34 year old market)
2. Digital Home (the key hub for communications and entertainment)
3. Digital Town (economic and social regeneration through connectivity)
4. Digital Workers (making the knowledge worker more productive)

On Day Three, we are holding a number of workshops:

1. IMS/SDP Insiders Workshop (open session)
2. Advertising-Funded Content (by invitation-only)
3. New Investment Metrics for Telcos (by invitation-only)

More to follow…

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November 2, 2006

Google & YouTube to combine Mobile + Comms + Content

We have long banged on about the need for operators, particularly mobile operators, to learn from the Web 2.0 social networking companies that combine user-generated content with a forum for chat and interaction. At the Telco 2.0 event I detected a distinct reluctance from operators to embrace this ‘challenge’ (opportunity?). Advertising revenues are for some reason considered dirty and users that don’t generate big ARPU’s are automatically low-value (tell Google that).

Now it seems that Mohammed is going to the mountain as YouTube has announced that it will be developing a system where its users can share videos created on the mobile without having to upload them via a PC.

The Red Herring article also discusses the fact that a day later Google announced that it has a very fast, very friendly Java application for Gmail on the mobile. Operators have done ok with the Blackberry, but have never really made in-roads into the consumer mobile email market (no consumer will pay £45 a month for the Blackberry service). With data rates coming down and the internet players providing mobile email clients, I wonder whether operators have missed the boat?

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

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