For the Chinese, 2007 is the Year of the Pig. For Hamid Akhavan, CEO of T-Mobile International, it’s the Year of the Business Model, or so he suggested in his keynote at 3GSM in Barcelona last week. We support this, of course, as it’s what the Telco 2.0™ Initiative is all about.
If 2006 was the Year of the Dog (telco investors might agree with this description), the Year of the Pig looks more promising, as our translation shows:
The pig is highly regarded for its chivalry and pureness of heart (“We’re just trying to help people ‘make the most of now’”), and often makes friends for life (“We call it ‘Customer Lifetime Value’”). For pigs in 2007 any recent setbacks or obstacles (”decline in share price, new technologies, lack of confidence, sub-optimal strategy”) can be overcome, so look forward to a year in which to really shine (“We need some of that ‘Blue Ocean Strategy’ the Telco 2.0 team have been telling us about”).
To market, to market, to buy a fat hog
Hamid’s presentation talked about the key changes in the mobile industry around three themes:
- Customer Needs — Tailor-made services, Ease of use, Simple and worry-free pricing,
- Markets — Even stronger competitive and regulatory pressure, and market saturation and price erosion, and
- Technology, specifically:
- Digitisation of comms and content,
- Broadband mobile and IP networks,
- Acceleration of innovation in devices and apps,
- Delayering of access and services, i.e. apps becoming network-independent, therefore operators losing control.
He described ‘Tomorrow’s World’ as being about:
- Multiple devices per person, rather than one converged device.
- Targeted offers for individuals — ‘hyper-segmentation’ needed.
- Overlap with adjacent markets: Operators, handset manufacturers, and service providers “stepping on each others’ toes” (e.g. Nokia buying Intellisync for push email).
- Super-broadband mobile networks: wireless 100mbps a reality by 2010 — beating Fibre/DSL (!)
- Mobile phone evolving to becoming the ‘personal companion’ (SMS/IM/Email merging into ‘social networking’ tools).
- Rich services on the Internet at your fingertips (entertainment, information, transactions, etc).
“We’ve just scratched the surface in terms of leveraging customer insights”, he said. “We’re not harvesting our existing customers very well today”.
Keeping snouts in the trough
The Key Success Factors for the industry to maintain and increase it’s monumental cashflows are:
- NGMN to deliver Personal Broadband vision (‘extension of HSDPA’)
- Fair share of ‘digital dividend’ (i.e. Regulators make new spectrum, especially from TV broadcasting, available to mobile operators. Lobbying needed for this.)
- Operators own IP comms services — “We need to move our business models to IP”.
- Worry-free pricing for voice, data and roaming (“Avoid bill-shock”) — and “sort it out before regulator does it for us!”.
- IP Interconnect to create an end-to-end value chain collectively between operators.
He summarised by saying “Operators have no choice but to actively take part in new business models - the operator as access provider, enabler, or partner. 2007 is going to be year of business model experimentation.”
He qualified this a bit by advising other operators who might be running ahead to trial “innovative business models” to be careful they “don’t destroy value for the rest of us” (perhaps referring to Hutchison 3G and it’s X-Series launch).
This little piggy ate roast beef
Arun Sarin, while proudly announcing Vodafone’s 200 millionth ‘proportionate customer’, described the “three imperatives for the industry”:
- Grow a bigger pool of revenues.
- Create common standards.
- Move faster in execution.
To grow bigger pool of revenues he advised:
- Competing in adjacent markets (he said Fixed-Mobile Substitution “was a reality” and cited Vodafone@home and ZuHause success, with 2m subs in Germany already)
- Creating New Forms of Communications (give people access to ‘web 2.0 services’, reminding us about Vodafone’s very recent deals with MySpace, eBay, Microsoft, Yahoo, Google, and YouTube.
- Generating new revenue sources.
For the last of these he said faster technologies and better devices were driving new opportunities, especially advertising. He reminded us that while 1bn people across the world use the internet, 1.4bn watch the TV, and 2bn use mobile phones. “Mobile offers unique reach, targeting and intelligence for advertising”. (More on this here and you can debate this notion here).
He told us of Vodafone’s new corporate direction (announced back in May 06): to get into fast growing, innovative emerging markets (cf. Telsim and Essar deals), in parallel with developing in mature markets (via the ‘Imperatives’).
He ended with a burst of PR clichés - “The industry is standing at a crossroads”, “We are seeing the evolution of business models” - and introduced us to some new jargon - “We are ‘de-walling’ Vodafone Live!”
And this little piggy ate none
We also heard from Sanjiv Ahuja, CEO of Orange, who talked a lot about “putting the customer first” and “the customer will define our success”.
Naguib Sawiris, CEO of Orascom, gave a more down-to-earth message: all he was focused on was shareholder value, because if he was successful at that, then he must be giving the customers what they wanted. He also compared the efficiencies of his portfolio (100m customers in 6 countries) with the sprawling nature of Orange’s (100m customers in 23 countries).
Do pigs make better pets than dogs?
So, what are we to make of these mobile CEO messages? What’s new and good, and what’s still problematic?
1.) NEW & GOOD - From Rent-Seeking to Value-Creation
From the T-Mobile and Vodafone CEOs, and implied by Orange, we see an acknowledgement (maybe for the first time in such a public arena) that the core of service value is outside the telco (“de-layering”, “de-walling”).
Hamid Akhavan talked about “tailor-made services”. This turns the telco from a gatekeeper of access to users by other service providers to a supplier of personalisation services and capabilities to those (upstream) 3rd parties. A move from rent-seeking to value-creation. Those upstream services will be part of a commercial platform that will include not only technical services like APIs into identity, profile, billing capabilities, but also services and interfaces into workflow for provisioning, customer care, retail, and analytics. This echoes Redknee’s presentation from the Telco 2.0 event last October, where they suggested telcos could supply privacy and anonymity services as a middleman (just one example of the platform’s role).
Hamid’s ‘hyper-segmentation’ is part of the same deal - it’s just the sales and marketing part of “tailor made”. After Flext’s success, T-Mobile have some credibility here: let the customer decide the right bundle combination for them (with you giving them the tools to make it painless and keep the deal fair for both sides).
“Worry-free pricing” is part of an holistic approach to creating value to users. The car manufacturing industry has a “dust to dust” concept of the whole lifecycle of a product - it’s cost, energy use, etc. Having an answer to the question “will my boss let me expense this [telco service]?” is as important to the user as whether the service actually works (if you want people to buy it). (T-Mobile UK’s current data pricing is a good example of taking out the ‘bill shock’, by the way. They charge 0.73p/Kb for data, but cap charges at one pound per day.)
2.) STILL PROBLEMATIC - Re-thinking the mobile broadband model
The problem with these noble aims, however, is that they require re-thinking the “mobile broadband model” to allow a blend of pure Internet access as well as subscription/ad-funded services that do not contain consumer data charges or drain your usage bucket. NGMN is part of the answer (and IMS is part of the problem).
3.) STILL PROBLEMATIC - Impact of ‘De-layering of service and connectivity’
The lack of operator control Hamid describes means potential user experience problems with provisioning, capacity, security, and so on. For example: If a broadband connection appears not to support the needs of a VoIP call, don’t just go ahead and give the user a bad experience. Instead alert them, ask them if they want to go ahead, and offer alternatives (e.g. a callback to a landline number). Designing for this heterogeneous world, with the ability to cope with variance and failure, is the big opportunity, and also the big challenge.
Hamid seems afraid of telcos being sucked into a destructive price war in their relatively undifferentiated core voice, messaging and broadband products. An example of how to avoid this, however, might be Verizon with EV-DO and FiOS: get the next level of capacity out there ahead of the competition and you’re a market of one with the heavy users.
4.) STILL PROBLEMATIC - Ignoring innovation in core voice and messaging
Arun Sarin talks about “giving users new services”, but what about the core revenue from voice and messaging products you have today? We note a serious lack of vision around presence, availability and other value-creation activities in this space, and a danger of handing over too much value to partners. The inability to identify real sources of value could cause some very naive business deals. For example, Vodafone should insist that any presence information that the MySpace user creates (e.g. simply being online) should be shared with Vodafone as the mobile distributor and federator of that data into multiple other services.
5.) NEW & GOOD - Big Opportunities in the ‘Multi-Polar’ World
Overall, the public messages from the top brass of the big mobile operators are good news. The “bipolar” world (broadband internet access only vs vertically integrated networks) gave telcos only two possible futures: “history continues” and “telepocalypse”. The multi-polar world offers more possibilities as telcos embed themselves in a broader set of value chains, albeit with less control. There are many new and different ways in which connectivity, services, content, devices and support can be packaged together which are difficult or impossible today.
Hard to herd swine
We have a hunch that back-office IT is what will sort a lot of the carnivores from the vegetarians here. Those who are stuck with mid-90s technology from the initial growth phase won’t be able to adapt fast enough; those who invested in service-oriented architectures, workflow and (business event) messaging infrastructure will be OK. Execution dominates strategy when you’re a dancing porker.
Bringing home the bacon
So, to conclude, some famous people were born in previous Years of the Pig: Humphrey Bogart, Thomas Jefferson, Ernest Hemingway, Alfred Hitchcock, and Arnold Schwarzenegger - all renowned for ‘breaking the mould’.
In the spirit of creative thinking, I leave you with this question: “how would each of these people execute strategy if they were in charge of a telco these days, and what (if anything) can we learn from this conjecture…?” (Come to London for the Telco 2.0 Industry Brainstorm on 27-29 March, and we’ll see if the question has stimulated any new insights).
And remember: the best treatment for a sick pig is…oinkment.
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