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March 30, 2007

Data Exhaust from Telco 2.0 Brainstorm

The Telco 2.0 team would like to extend a very big thank you to all the 250+ people who took part in the Industry Brainstorm this week. We have just had the raw verbatim output back from our interactive system and there is a huge mass of data to process - new ideas, questions, issues, votes, etc, etc. Over 150 pages of ‘User Generated Content’ collected via a form of ‘Social Networking’. We’re living the dream…

The presentations and the verbatim brainstorm output will be available to the participants in the next few weeks (we’ll tell you when). We’ll post summaries and additional analysis on this blog too.

We will also be doing some intensive follow up with the participants so we can make the next event (16-18 October, London) even better. We already ready have LOTS of ideas, but want to get your input.

We’re taking a few days off now to recover …

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March 26, 2007

New SDP Architecture needed for ‘The Long Tail’

Aepona have some strong and interesting views on SDP architecture. We asked Michael Crossey, who’s a stimulus presenter at our Technology Insiders’ SDP/IMS workshop at the Telco 2.0 event this Thursday to explain the impact of ‘The Long Tail’ on SDP architectures. He says:

“Those of you who are regular readers of Telco 2.0 blogs, and followers of developments in the world of Web 2.0 in general, will no doubt be familiar with the concept of the “Long Tail”. For those who aren’t, the Long Tail is a term used to describe certain business and economic models in which the accumulative sales value of niche or specialist products exceeds that of the most popular products. This effect tends to be associated with Internet-based business such as Amazon and iTunes, where the costs of inventory storage and distribution are low relative to traditional businesses.

For such business models, research has shown that consumers place much higher value on the availability of niche products that appeal to their specific interests, than on the pricing of those products. Increasingly, this concept is being applied to content such as video, particularly as telecommunications operators consider how they can differentiate emerging IPTV services against the current offerings from established mass-market broadcasters. Some of these operators are looking to leverage the Long Tail effect by offering a broad range of specialised IPTV content to their subscriber base, taking advantage of an IP-based storage, transport and distribution infrastructure that allows them to achieve this cost-effectively.

So what has all of this got to do with Service Delivery Platform architectures?

Put simply, SDPs will have to change dramatically to adapt to this new economic model. Up until now, SDPs have been built to cater for “classic” content distribution models, where a relatively narrow range of broad-appeal content, from a handful of content providers, is offered to the subscriber base. These SDPs were effectively large, bespoke Systems Integration projects containing a high number of proprietary products and interfaces, with the majority of the cost to operators being attributed to professional service fees. As a result, operators could only form relationships with a small number of content providers, since creating and maintaining these relationships is a manual, resource/time-intensive and ultimately costly process.

This has, in part, led to the emergence of content aggregators in the value chain. However, relationships with content aggregators involve the same issues as described above, but more significantly, having another player in the value chain clearly reduces potential revenues to both the telecoms operator and the content provider, as well as reducing the flexibility for the operator to fully exploit network capabilities other than simple messaging (e.g. call control, rich presence, profile, location, and so on).

To adapt to the Long Tail model, a new kind of Service Delivery Platform is needed, one that embraces recent advances in IT Technology and that is built around standards-based, cost-effective products, not costly, bespoke integration services. Key technologies for this new SDP include Service Oriented Architecture (SOA), Web Services, and Enterprise Service Bus. Most importantly, the new SDP should embody the concept of a “Loosely Coupled” architecture, whereby each party involved in the delivery chain brings unique capabilities or assets, coupled together via SOA to create a complete service in a cost-effective and highly scalable manner.

With this type of SDP, operators can partner with a much broader range of content and application providers, many of whom will be small (perhaps even single-person) players offering targeted, highly specialised services.
This is made possible by, in part, by Web Services, the de facto modern standard for a distributed service architecture. With a Web Services based infrastructure, an organisation (however small) can draw on a huge range of programming resources and need no longer rely on highly specialised engineers.

This is, of course, an imperative for the mass market, for which telecoms-specific interfaces such as SMPP are inappropriate. With a Web Services/ SOA based SDP, it is straightforward for an operator to compose the actual services that are used by the third parties. These services, whilst exposing the standard telecom web services, implement the necessary access control and business logic personalised for each partner.

A critical element of the new SDP is the provisioning and management of third party content and application providers, a function which addresses issues such as security, policy, SLA management and billing. In order to provide the required scalability to address the high number of partners envisaged under the Long Tail model, this needs to be a “light touch”, highly automated function based on standard, widely understood protocols and interfaces. Moreover, this function needs to permit changes as services evolve, again in a light touch fashion.

This is where Web Services oriented technology comes into its own. Discovery and provisioning via Web Services allows the management and control to be integrated with an operator’s more general account management.

In summary, the time has come for the industry to embrace a next-generation Service Delivery Platform, one that allows telecoms operators and content/application providers to take full advantage of the emerging Long Tail economic model, and that is based on modern IT concepts such as SOA and Web Services using standards-based products rather than costly, inflexible Systems Integration projects.

Several pioneering operators, such as TELUS in Canada, are already well down this path, using Aepona’s Telecom Web Services platform to realise such an SDP. When this approach is more widely adopted operators globally, then the full potential of Telco 2.0 can be truly realised.”

Come and join the brainstorm on Integrating Technical Architectures with Telco 2.0 Commercial Realities this Thurs. Register here.

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Mobile ad networks are a stop-gap: the real opportunity is elsewhere

We’re delighted to have Damian Glover, a writer for the Economist Intelligence Unit, as ‘analyst-in-residence’ supporting the ‘Telcos Role in Advertising Value Chain’ event in London this Thursday (29th March), run in partnership with the GSM Association. Here Damian shares his thoughts on Mobile Ad Networks:

To Boldly Grow…

Mobile advertising networks such as Admob, Third Screen Media and Nokia’s recently launched Ad Service are predicated on large-scale media consumption on mobile devices. Whether or not this transpires, I believe media-hosted mobile advertising will prove to be a sideshow to the main event.

It’s easy to understand the current interest in extending the advertising network model to mobile. Fixed-internet ad networks such as Google AdSense, Advertising.com, ValueClick, Tribal Fusion and BlueLithium have made rapid inroads into the digital advertising market during the past few years. According to comScore, at least 15 ad networks each reach over a quarter of everyone online today. Moreover, this reach is being translated into revenue: ad networks now account for a quarter of online display advertising, according to e-consultancy.

The rise of the online ad networks has been driven by the explosion of blogs, niche interest sites and other long-tail web content, coupled with a homogenous delivery platform (the web browser) that permits audiences to be tracked and ads served across a diverse range of properties.

It’s advertising, Jim, but not as we know it…

However, two conditions make mobile advertising very different to the on-line world:

1. Media ownership is likely to be more concentrated on mobile… Greater resources are needed to produce content that works across a range of devices, creating significant barriers to mobile publishers. In addition, recent research and analysis reveals a strong bias among mobile internet users towards messaging applications, maps and social media - services that have favoured the emergence of a handful of dominant destinations on the fixed web.

2. …but the delivery platform is more fragmented. With mobile internet users focusing their attention on a relatively small number of properties, and accessing these via a proliferating range of devices and networks, mobile advertisers are more likely to be impacted by the fragmented delivery platform than by fragmentation of the media landscape (the issue addressed by advertising networks). At the same time, the bigger mobile media owners have little incentive to cede control of ad sales to third parties (Third Screen Media recently acknowledged it is seeing a trend of mobile media owners choosing to stay outside its ad network and rent its ad serving technology instead, as Fox News has done).

Mobile delivery platform fragmentation manifests itself in, for instance, cookies being handled differently (or not at all) by different mobile browsers, web-originated MMS messages being blocked by some operators, video stuttering on some handsets while playing smoothly on others, and a litany of other headaches. Some, but by no means all these issues are being addressed by specialist solutions providers. The lack of consistent support for cookies is looming as a particularly intractable problem for “traditional” mobile marketers.

I need more power, cap’n…

While displaying ads on mobile websites may initially be an effective brand awareness tactic, this is likely to be largely due to novelty, rather than the limited impact of a 150×20 pixel banner. Mobile marketers point out that the key purpose of mobile ads is to drive interaction with the brand - yet what will mobile users be interacting with? Only a small number of brands currently have a dedicated mobile internet presence; even fewer can justifiably claim to offer a compelling mobile experience.

A more fundamental hurdle to the mobile ad networks - and indeed to traditional advertising being transferred successfully to mobile at all - is that advertisers do not know mobile users sufficiently well to understand what they are likely to find interesting, useful or valuable. This is an essential requirement if mobile advertising is to avoid becoming a counter-productive nuisance. Mobile ad networks simply cannot provide this level of insight into mobile users.

This is illogical, captain…

The real opportunity is for mobile devices to become digital assistants that learn about their owners and anticipate their whims - a possibility hinted at by Joe Uva, the CEO of ad agency OMD, when he outlined his vision of a “media concierge” service at the iMedia Brand Summit as long ago as February 2005.

The only entity in a position to achieve this level of understanding of a mobile user is their mobile service provider. Mobile operators are (or soon will be) the gatekeepers to such key enablers of advanced mobile advertising as customers’ identity, presence and location information. Moreover, they are the only companies with a sufficient level of trust to make credible claims about protecting such extremely sensitive data (their customers may complain about high bills and poor customer service, but rarely dispute call charges).

Mobile advertising needs to be promoted as, and perceived by users as, a valuable service. Operators need to own the customer experience - after all, they will be answerable for ads targeted and delivered using their capabilities. Everything about the service must be transparent, from who is providing it to how users can adjust or cancel it. The overriding need to protect the user experience means ads can’t simply be pushed to users by third party advertisers. Rather, ads must be pulled from an ad server (possibly, from many ad servers) by the operator and delivered to users, based on the operator’s unique understanding of which ads are likely to be most relevant at the instant of delivery.

The system that performs this task will probably need to be located within the operator’s network. Certainly, the operator will need to put in place dedicated resources to actively administer the business rules that determine when advertising is triggered, and constantly refine these rules based on customer feedback. In short, only the operator is qualified to judge which ads should be delivered to which users.

This turns the notion of targeting on its head. Traditionally, advertisers are the ones who deem which kinds of consumers should receive their messages; in the coming era of advanced mobile advertising, operators will make the call about which messages to send to their customers.

In short, it’s down to the operators to leverage their network capabilities, customer records, transaction and behavioural data and other unique assets to develop a deep understanding of their customers and what they’re into - with the customer always in control of how, if and when their data is used.

Rather than aggregating inventory or “eyeballs”, the greater opportunity for mobile advertising networks is in aggregating advertising content. The most successful ad networks will be the ones who provide the most contextually rich offers for mobile operators (and eventually web media owners and IPTV service providers) to deliver to their customers. There will also be an opportunity for niche players to specialise in helping advertisers enrich the metadata associated with digital ads.

Warp Speed 10 please, Scottie

A number of things need to happen before this becomes a reality. The mobile industry needs to define a common language (probably an XML schema) which can be used by advertisers to communicate an ad’s properties, including time codes and geo codes. Meanwhile, advertisers need to work to include as much rich information as possible with product and offer details. APIs provided by Point of Sale software vendors already provide retailers with the basic infrastructure to do this.

Of course, none of this will happen overnight. Advertisers will continue to tap mobile operators to reach the “young affluent and fun” demographic, and the nascent market for basic targeting of mobile users served by the mobile ad networks will undoubtedly continue to grow in the short to mid term.

If advertisers can no longer dictate who their ads are seen by, what incentive will they have to provide their ads to a third party aggregator with no inventory or eyeballs to their name? In a word, results. This kind of advertising will simply work. Ultimately it comes down to people knowing themselves better than advertisers do, and choosing to share aspects of their identities and lifestyles with one, trusted service provider.

Damian Glover helps technology, media and telecoms companies implement digital content publishing activities to establish thought leadership and drive lead generation. He can be contacted at glover@fastmail.fm.

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March 20, 2007

Telcos as digital identity enablers

We’re looking forwards to the Telco 2.0 event next week. One of the presenters on Day 3 for our Technology Insiders workshop is Aude Pichelin. She is Head of Multimedia Services Standardisation at France Telecom, and will be reporting the results of some of their work in the area of operators and digital ID.

This session particularly interests me because I was personally on a project to create a single customer identity at a large carrier, and the task proved virtually impossible. Fifty million customer records from three independent business units and dozens of silo-built applications meant that the process of matching records could never be accurate enough, and the effort of users claiming and merging their multiple accounts always too difficult to implement in practise.

Phone calls might be free, but spam and fraud are expensive

Whenever I walk past an mobile operator retail outlet, I don’t see a “phone store”. What really happens is someone goes in wanting service, and presents various credentials (e.g. drivers license) and personal data to pass a credit check. They leave with a SIM card which happens to be wrapped in a radio and provisioned with a phone number. It’s a strong digital identity retail store.

Subscribers then go on to call lots of friends, family and workmates, and the telco keeps the records. These people in turn will know who you are and where you live. You also can’t create new device identities or phone numbers at whim — at least not at any scale. So it’s a bad idea to use your phone for illegal or abusive purposes as there is a good chance of being caught. Watch the bits, not the atoms. These identity bits were expensive to obtain, and the Internet players don’t have an equivalent infrastructure. Identity is a valuable and profitable business. Just ask Neustar, Verisign and Experian.

This is a particularly good time to be discussing the commercial aspects of operators as identity businesses. For a number of years there have been discussions centred around technologies like ENUM. This would (in principle) allow carriers and users to open up the numbering system (and strong authentication and identity) to new services. In practise this hasn’t happened. The technology has been immature, the cost of implementation too high, the user experience too complex. Most of all, operators fear the loss of control — they like the closed worlds of voice, SMS, MMS and video calling. The business model of being an open platform has been too uncertain.

Open identity technology changes the game

This is likely to change. One reason is better technology. Largely unnoticed by the commercial side of the telecom business, a new identity infrastructure is being spawned that learns from the mistakes of the past. Imagine a “Telco 1.0” version of the Web where every web page had to be registered in a central directory before it could be published. That’s what previous identity services have been like — either highly centralised, or “federated” but under the control of the site owners.

The web’s hyperlink structure decoupled directory services (e.g. Yahoo!) from publishing. It also decoupled my page from yours, because we didn’t need to agree on any protocol for exchanging links and backlinks. We can do the same for strong identities, and let users “publish” their identity without having to get permission first. The technology that does this is called OpenID.

The idea is deceptively simple. You put more control in the hands of the user in a highly decoupled architecture — all very Telco 2.0. Rather than a site-specific user ID, users identify themselves via a unique URL of their own choosing. A series of web page redirections land you at an authentication page of your identity provider (which could be a telco). And once you’ve authenticated, you find yourself back where you started, but logged in. In some ways the experience still feels like the failed Microsoft Passport service — but the reality is totally different, because it’s the user who chooses who their identity provider is, not the business development folk of the web site.

So what? This could become a large business in its own right

Companies like eBay are sweating under the burden of abuse. A fraudster can create new eBay identities at any time. Users bring no identity collateral up front: they are expected to build up a reputation solely within the service silo itself. More trust, more users, more transactions, more revenue. Whoever enables it deserves some to share the benefit.

The opportunity is for operators to reduce the friction in people transacting goods and services. If you can sign up for eBay with a telco ID, it can immediately gives people more confidence in who you are. The operator might asset how long the identity has been in use, and how many parties have relied on it without complaint.

There are many possible business models. Your operator-hosted authentication page might have service promotions or adverts. Third parties might be offered the ability to buy additional data asserting the strength of the identity on offer. Users are unlikely to ever be charged for identity services explicitly, but it could be a churn-buster. After all, how do you “port” the identifier URL http://www.vodafone.net/447912987456 to another carrier? And what if that carrier doesn’t have the identity collateral and web of relationship data that your current carrier has on you?

The time has come for operators to experiment with new revenue streams and business models. Being an identity provider is one of the stronger candidates, as part of being an enabling business platform.

Should operators be wholesaling enabling capabilities like payment and identity services to 3rd parties? Come and debate it at our Telco 2.0 Industry Brainstorm next week.

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March 19, 2007

Digital Youth - Who are They and What do they Want from Telcos?

Da Youngbouls ar babtastic for de Celly companies. We av always bin chillin and cyber has let us drown in a frown and swim in a smile. We is it and der is no way we is gonna pay chips to the cellies ‘cos, rememba, CREAM (Cash Rules Everything Around Me). But, hey, der is moola out der for der cellies and cyber companies as long as day give me a stupid loada fings like WoW (War of Worldcraft) for nish.

Rough Translation:

The (15-25 year-old) Youth market has recently entered Telco consciousness as a customer segment worthy of greater attention. Youth has always been ‘different’ in their attitudes and behaviour but the internet and the mobile phone have enabled them to socialise and express themselves in new ways. Many of these behaviours have represented a threat to traditional business models (no surprise there - it was the young who used to pirate music by recording on blank tapes many years ago…) but others, such as social networking, have resulted in new models developing.

In this post we explore some of the issues we will be debating in the Digital Youth stream at the Telco 2.0 Brainstorm on 27-29 March. We’re looking to:

  • Clarify the needs and usage trends of the Youth segment (how they socialise and communicate, how they use technology);
  • Articulate the key challenges in responding to this (threats to traditional business models, emerging business models, key factors for success);
  • Learn from case studies (what can we learn from Web 2.0 success, the importance of building a community, how to make money?);
  • Refine the strategic options that Operators have in addressing this segment.
    As with all the workstreams at the event, we have a number of terrific stimulus presentations lined up to help us (1) Clarify our hypotheses, (2) Debate the issues and (3) Develop company-specific and, where appropriate, industry-wide solutions and action plans. More on some on some of the presenters below.


Express yourself…Express yourself…Come on and do it… (NWA: Express Yourself)

  • Younger people have been weaned on digital technology and use it differently to their older counterparts. For example, they are more comfortable with multi-tasking (e.g.carrying out an IM chat while listening to music and playing a MMORG (Massive Multi-player On-line Role-playing Game) than the older generations.
  • They want to express their views and feelings actively and contribute to discussions and content creation - Youtube, MySpace
  • The digital world gives younger people the opportunity to meet and express themselves away from prying parents - in Habbo Hotel, Second Life etc.
  • They tend to find ways of avoiding traditional toll charges - e.g. for games, music, videos

We have three very experienced speakers who will explore what the younger generations are thinking, feeling and, most importantly, doing and the implications for the Telco community:

Following his stunning presentation on the younger generation at the Telco 2.0 event in October, Norman Lewis, Director of Technology Research at Orange, will explore in detail what ‘Digital Kids’ are up to and what being on-line and having a mobile phone in their hands means to them.

Peter Miles, CEO of SubTV, will talk about the understanding SubTV has developed about the student market where it provides ad-funded television and mobile services to 90% of the universities across the UK.

Finally, Nick Bassett, Market Research Manager at Vodafone UK, will share some of the research his team has undertaken on the behaviour of the younger segment within the Vodafone UK customer base.

Enemies of the music business…Black sheep on the cusp…Enemies of the music business (Napalm Death: Can’t Pay,Won’t Pay)

  • Younger people have always sought ways to affirm their sense of belonging to their ‘tribe’ by sharing clothes, music etc.
  • Since Napster’s early peer-to-peer service, the digital channel has been the preferred way of sharing music and videos without having to pay the record companies and several social networking sites have sprung up enabling this - Youtube, Bittorrent, etc.
  • Similarly, younger people have embraced free internet-based communications services such as IM and VoIP offered by MSN, Google, Yahoo! and Skype
  • These (illegal) distribution methods and ‘free’ communications services threaten the business models of Telecoms and Media companies

Ian Henderson, formerly of Orange, now Senior Director at SonyBMG will talk about how the company is using an ad-funded portal, MusicBox, to distribute music videos and develop artist-centric communities.

Chris Lennartz, Director of Marketing and Business Development at LogicaCMG, will consider the next-generation messaging solutions required to meet the needs of a youth segment demanding greater interactivity, richness, personalisation, convergence, ubiquity, flexibility and simplicity from their communications.

Moblog UK’s founder, Alfie Dennen, will explain how his company has successfully developed a community of young mobile bloggers willing to pay a monthly subscription for the service.

I get good advice from the advertising world…Treat me nice says the party girl (The Clash, Koka Kola)

  • Several new business models have evolved on the web, most of which use advertising to reduce or eliminate user costs
  • There are however concerns as to whether advertising alone can generate sufficient revenue for operators to cover their network costs (which are substantially higher than internet-based businesses)
  • If advertising alone is insufficient going forward, operators are left to consider how subscription and advertising business models should co-exist and what implications these differing business models have for their proposition portfolio and customer segmentation model
  • Operators are now trialling several Web 2.0-like propositions and seeking to develop answers to these questions

We will explore some of these trials and early services at the event:

Martin Duval, Director Business Development & Partnerships with Start-Ups & Venture Capital funds at France Telecom will present Pikeo, the new service which combines the photo-sharing capability of Flickr with the location-mapping functionality of Google maps.
David Springall, Yospace’s CTO, will explain how his company developed the business model and technology behind 3’s SeeMeTV and O2’s LookAtMe.
Phil Guest, MD of Habbo UK, will explain how Sulake has developed such a strong following among the young for Habbo Hotel

Money, get back…I’m all right Jack keep your hands off my stack (Pink Floyd, Money)

To make money in this market it seems there are a number of things that the Telco community needs to do:

  • Understand the needs of customers MUCH better - so it can develop micro-segments and community groups within a diverse customer base
  • Understand the economics of different business models better and the interaction between them (e.g. pay-for vs advertising and the cannibalisation risks inherent in introducing the latter) - see our report Telcos’ Role in the Advertising Value Chain for more details on this.
  • Develop propositions which support communities and engender a strong sense of belonging
  • Get the (complex) pricing model right!
  • Partner effectively to extend the value you can offer customers - enable them to express themselves through communications + games/video/music/UGC/etc.

Javier Ferreira, Vice President Sales & Marketing Europe at EA Mobile will explain how the Games and Telecoms industries and can work together more effectively to generate greater value from the game-playing youth segment.

The well-known author and 3G guru, Tomi Ahonen, will outline his ‘answer’ for operators in this area.

Following brief presentations from Javier and Tomi, the audience will be invited to participate in a debate on the best sources of value for operators in this market.

As with all Telco 2.0 events, the Digital Youth day will be highly interactive with lots of opportunities to debate and discuss issues with the speakers.

I look forward to seeing you there.

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Femtocells - What are they and why are they important?

Given news last week that, on the one hand, Deutsche Telekom is no longer promoting its FMC offering (T-one - just 2,000 users in 6 months) and, on the other hand, Vodafone talking about how it’s Fixed-Mobile Substitution service, @Home/zuHause, is taking off (2 million subs in Germany already), we thought it would be useful to look at Femtocells - new devices that could help mobile operators penetrate deeper into the Digital Home market.

Whether it’s network coverage, retail presence, or compatibility with existing infrastructure, the winning strategy over and over in telecoms is “out-distribute the other guy”. Telco 2.0 event sponsor ip.access describe below how femtocells help execute this strategy for operators. There is some irony in operators using expensive licensed spectrum to deliver their nemesis — open Internet access — to mobile devices. However, we think this will prove to be a winner against Wi-Fi/UMA access — whose proponents will over-estimate the importance of speed and low price, and under-estimate the overall user experience, the lack of dual-mode handsets and the distribution ecosystem of cellular. Andrew Tiller, who’ll be speaking in the ‘Digital Home’ workstream, explains:

Why femtocells?

Femtocells are tiny access points that plug into a residential broadband connection to provide a 3G mobile signal directly in the home.

Apart from being able to extend network coverage where none previously existed, femtocells have the potential to play a significant disruptive role in Fixed Mobile Convergence.

Delivering high-speed mobile data inside buildings is a tough challenge for the macro network. A home femtocell not only delivers fast (HSPA) data rates, but it does this at very low cost because the traffic is backhauled to the mobile operator’s core network over the household’s existing broadband link.

These cost savings can be passed on to customers in the form of targeted “homezone” tariffs, making the mobile phone competitive not only with the fixed line telephone, but also with the TV and PC for entertainment and information services in the home.

But do people really want to use mobile data services at home? After all, the PC and TV are readily available, free, and in many ways more natural choices for video entertainment, Internet browsing, social networking, instant messaging and other applications.

Interestingly, it seems that the mobile phone might indeed retain its appeal, even when pitted against the PC and TV. For instance, a recent McKinsey report (“The Revolution of the Third Screen”, October 2006) highlighted that 35% of mobile TV is watched in the home. And the mobile phone has advantages, such as privacy for IM sessions and Internet browsing, as well as the convenience of being immediately to hand for quick tasks like Internet search.
Much of the user-generated content shared on the Internet is captured on mobile phones, and RSS feeds and podcasts are often consumed on portable devices. It makes sense to upload videos and photos directly from the mobile phone to websites like YouTube and Flickr, and also to download podcasts and music directly to the phone from the web. Doing this on the macro network is expensive, but will be much more affordable using a femtocell at home, and much more convenient than transferring everything via the PC.

Encouraging use of mobile data services at home, especially for web applications such as social networking and Internet search, is strategically important for mobile operators who have begun to embrace Internet business models. Instead of charging per MB for data, they are beginning to share content and advertising revenues with web and media partners. The more users purchase and download content directly to their phones, and the more they use the phone for Internet search and social networking, the greater the advertising and content revenue a mobile operator can generate. And the cheaper it is for the operator to deliver the data, the more profitable these revenue sharing deals become.

And as subscribers become familiar with these services inside the home (where femtocells provide a fast connection and an attractive price), the more they will use the same services outside the home as well.
In fact, femtocells have an additional, hidden benefit outdoors. Because of the way W-CDMA works, power is shared amongst all users in a 3G cell. If some users are indoors, the radio signal must be forced through walls to reach them, and their phones therefore consume a large share of the available power. The net result is that quality of service is degraded for outdoor users.

If the indoor users are served via femtocells instead of from the macro network, outdoor users will benefit from a significant improvement in quality of service, as the capacity of the macro network improves out of all proportion to the number of users who have been removed from the cell.

All this adds up to an attractive proposition for consumers and operators alike. Consumers get attractively priced, high-quality voice and high-speed mobile data services in the home, and seamless handover to the macro network when outdoors. Mobile operators benefit from lower costs and increased usage, leading to profitable revenue share with their Internet and web partners. What’s not to like?”

Come to the Telco 2.0 session on 27-29 March, London to understand more about this…!

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March 16, 2007

Broadband Incentive Problem - some new data points

A useful post here by Jeremy Penston from the IP Development Network about the online video market and the effect on ISPs and telcos (summary stats below, here). It supports, of course, our premise that the ‘Broadband Incentive Problem’ is getting worse - providing broadband services will increasingly become less economically viable, as the trends in South Korea and Japan are showing us.

What to do about it? Well, that’s what we’ll be debating with Cameron Rejali, MD of BT Wholesale, Hossein Moiin, VP Group Tech Strategy and T-Mobile International, and Antony Walker, CEO of the Broadband Stakeholder Group on the first day of the Telco 2.0 brainstorm.. I’ve asked Cameron to cover the following points in his stimulus presentation:

What are the current European broadband consumption patterns? How are they forecast to change? How are end-users (really) changing in terms of their requirements? What strains is the above making on broadband retailers? What does thewhole value chain needs to address these strains?

Hossein Moiin, will give his perspective as a retailer of mobile broadband services, and how the mobile industry is re-engineering it’s technical architecture (see post on NGMN.org here) to support end-users’ ‘personal broadband’ requirements.

And Antony Walker will describe the imperative for governments and regulators to get a much better understanding of the above issues.

Online Video and Broadband Incentive Problem. Some data points:
* South Korea and Japan: 4% of users make up 75% of traffic
* Bandwidth demands exploding: Ripped HD video files are freely available using p2p. 20 GB downloads are a reality. HD files are x10 size of normal online movie. 1 second of HD is 65x larger than 1 second of audio.
* One HD video costs as much to download as 340 albums, yet it costs the same to post them. Explain that to your customers!
* All current “solutions” aim to deter use: Traffic shaping is good technically, but has a negative impact on the quality of the customer experience. Capping and Fair Usage Policies are also good in theory, until the time comes to enforce them. Usage Based Charging (PAYG) is less confrontational, but bandwidth is not the same as real world value.
* YouTube shows there is a market that wants online video services.
* Content owners have problems. Pirates are cracking their DRM keys - HD DVD and BluRay already cracked.
* New bandwidth-hungry services entering the market: Joost, Babelgum.
* P2P platforms becoming legal: Bit Torrent signing deals with Hollywood studios, Zudio (HD Content Distribution site) signing deal with BBC Worldwide, Verisign’s Kontiki being used by Sky, AOL etc…
* Can you stop users arbitraging what is fairly priced against what is legal?
* iTunes shows there are large numbers who will pay a fair price for a legal, high quality version of popular media. But those who own it are nervous to sell it in case it gets ripped and shared…
* And thus ISPs are nervous to deliver it in case it overloads their networks…

So, some heavy re-structuring of the business model needed to address these issues. ‘Free’ broadband offers are no longer viable. There’s probably some short term upside for telcos (to upgrade their customers to new tiering levels), but we need some very creative thinking in the longer term.

James Enck will be telling us more about these ‘fat applications’ at the Telco 2.0 event and what the opportunities are for telcos, esp in hosting and transit.

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March 14, 2007

How BT Vision manages Digital Content

We’re keen to have interesting ‘enabling’ companies at the Telco 2.0 Industry Brainstorms. So we’re delighted to have a relatively small and new UK-based company called AssetHouse stimulating the Digital Home workstream in a few weeks time.

They have pioneered a software architecture that allows telcos, cablecos and other ‘content service providers’ to separate the management of content services from their delivery applications. This is important because it removes the technology “silos” that typically exist between different delivery channels, and in so doing enables the delivery of content - quickly and cost-effectively - to multiple devices: TV, PC, PDA, mobile phone, games consoles. This helps the service provider adapt their offerings to consumer preferences much more efficiently.

Edward Roberts, a Director at AssetHouse, will be talking specifically about their work with BT Vision in the ‘Case Studies/New Concepts’ section of the brainstorm. I asked him to describe more about what his company does and why it’s important to ‘Content Service Providers’ (CSPs):

“In recent months, players such as BT, BSkyB, Channel Four, Orange, Tiscali and Virgin Media have unveiled plans to launch a range of next-generation broadband services (including video-on-demand) to allow subscribers to access, download and share movies, video, music and other forms of digital content.

A key challenge, however, for these and all players in this market has been to build an infrastructure that allows content services to be created once, but used many times in different incarnations - so they can accelerate time to market, reduce operational costs and improve quality of service.

In theory, if the Content Service Provider (CSP) could take responsibility for the entire product lifecycle, they could add considerable value to all stakeholders in the value chain. However, the main barrier to achieving this has been managing the data and metadata, specifically:

  • ingesting metadata from content providers or third party digital asset management (DAM) systems
  • managing B2B relationships and associated terms and conditions
  • amending and enhancing content metadata
  • creating content associations
  • adding editorial voice
  • exploiting delivery service capabilities and avoiding their constraints
  • utilising customer and transactional data
  • providing inputs and outputs to Business Support Systems (BSS), media management systems (encode, transcode and storage) and delivery technologies.

CSPs have traditionally struggled to meet these challenges and thus take advantage of pent up market demand. This is partly because the technology tools for CSPs to manage their content operations effectively have just not been available. As a result, they’ve suffered from following problems:

  • The cost of content re-use has been prohibitively high, because content has needed to be re-purposed - formatted, tagged and coded - each time it is used in another application
  • Content has been handled in a monolithic fashion, making it impossible to “slice and dice” effectively into new services
  • Time-to-market has been slow and expensive - it is simply not efficient to build content services one application at a time
  • Systems haven’t been designed to handle the level of interaction from customers or partners that is required throughout the content supply chain, or to enable content to be delivered to multiple devices

In the past value was created by producing mass market content and owning access to a limited number of platforms. AssetHouse’s technology development has focused on helping CSPs generate more value by selling personalised content based on data derived from the media itself, from an expert knowledge of the content, and from commercial relationships with the supply chain and the consumer.

We created a Digital Product Management platform to support supplier and content management, product management, and editorial voice and delivery channel management. BT use this as the underlying technology for the content operations backbone for their groundbreaking BT Vision service.

Our software supports a content operations application that sits behind and functions independently of the delivery application and set-top box. It enables BT Vision to describe and manage content, model content services, and uphold business and service rules consistently across multiple content services.

As a result, BT Vision is able to roll out broadband services such as video and music on demand, EPG, and timeshift TV over broadband rapidly and cost-effectively. As demand for the service grows, the AssetHouse solution should allow BT to launch new content services whether they are be interactive, games or simple applications to multiple platforms - TV, PC and mobile phones - from a single content operation. This gives BT the flexibility to follow its own creative direction and outsource development to independent organizations, while helping to contain costs.

Our view is that the expertise and technology to effectively manage the ‘digital product lifecycle’ necessary is now available to CSPs. This should allow them to capitalise on continual advances in digital content and trends in ‘Digital Lifestyle’.

I’ll be talking about the practicalities of making this work at the Telco 2.0 ‘Industry Brainstorm’.”

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March 12, 2007

Telco 2.0 Report Exec Summary: Telcos’ Role in Advertising Value Chain

Things are really getting busy ahead of our event now but I am delighted to have got one thing off my plate: the Telco 2.0 Strategy Report: Telcos’ Role in the Advertising Value Chain is complete!

I sent it off to 3 clients that had pre-ordered copies on Friday and was delighted to get a couple of positive responses this morning from them. One said it was “exactly the level and depth we hoped for” and that it would “inspire us in our work building up an advertising platform”. It certainly doesn’t lack depth - 150 pages of powerpoint.

The report’s key differentiator: it is strategic and explores WHAT needs to be done by operators and other value chain players to grow the advertising opportunity into a sizeable market (as well as cotaining lots of analysis, market sizing, case studies etc.).

We wil explore the actions that will drive success in more detail at the advertising workshop on the 29th March but, in the meantime, delegates and non-delegates alike might find the executive summary of the report useful.

If you can’t read it easily on here then click on the logo bottom right and it will take you to the slideshow where you can view it full screen.

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March 8, 2007

Digital Worker Market - More Telco inspiration please

There should be a significant growth opportunity for telcos in the business market, especially the SME (Small & Medium Size Enterprise) segment. But it’s a challenge, due to current perceptions of what the end-user (knowledge worker) needs, what’s sold to them, and, maybe most importantly, the way it’s sold.

Below is the ‘hypothesis’ we will be debating in the Digital Worker stream at the Telco 2.0 Brainstorm on 27-29 March. We’re looking to:

  • Clarify knowledge worker needs and usage trends (current and future),
  • Articulate the key challenges in responding to this (looking at devices, identity, security, packaging up propositions, and sales methods - stimulus from Nokia, Intel, BT Global Services),
  • Learn from case studies (from BT’s ground-breaking MyBT programme, Cisco’s internal use of it’s voice/web/video collaboration tools, and Microsoft in terms of making office apps mobile)
  • Refine the strategic options that Operators have in this market (exploiting un-met needs, and re-configuring the value chain).

As with all the workstreams at the event, the stimulus presentations are tightly focused after considerable briefing, to provide new, cutting-edge insights. The participants will brainstorm using the interactive ‘Mindshare’ process.

HYPOTHESIS: DIGITAL WORKER - Opportunities for Telcos in addressing Knowledge Worker Productivity

Digital workers free themselves from analogue constraints of place, people and time
• Change in composition of the workforce: a generation of creative (and sometimes chaotic) individuals are entering the workforce. They take computers, mobile phones, broadband and the Internet’s resources for granted.
• Flexible careers, flexible working, flexible lives: Working anywhere, anytime, on anything. The daily commute is fast becoming a mobile office, the home becoming a hub for the enterprise.
• Blurring of divide between large enterprise, SME and entrepreneur: all have access to similar, powerful business and communications facilities at low cost (although corporates still have access to the most powerful systems).
• Users are adapting multiple communications tools (including consumer technology) to fit their work needs. There is a corresponding change in social expectations of workers and their contactability and responsiveness.
• Social, environmental and user demands to reduce unnecessary or unproductive travel.

Current Telco approach to solving Digital Worker needs is uninspiring
• Corporates and large enterprises: full managed global services based on large individually negotiated contracts
SMEs: Individual services - PSTN, Mobile Phone, Broadband, cable etc. with premium support.
• SoHo: buying pattern similar to SMEs, but often buy residential/consumer services instead.

Is it still leisure if you check your work email on the golf course?
• Work-life balance a problem to users. Mixing office and work stresses with home life can adversely affect the family.
• Blackberry-type messaging is a corporate stovepipe that doesn’t necessarily fit well with other personal communications needs, hence many carry two devices (or more).
• Users bear high hidden costs in getting connected, and managing messages from multiple channels and dealing with multi-tasking.

Telco solutions placing too much integration and support effort on the user, and cost too much
• Large corporate market is fiercely competitive, with narrow margins. Yet solutions often lack support for home/remote working, and mobile services are positioned as an add-on rather than fully integrated.
SME/SoHo stand-alone services are not integrated, and may lack satisfactory support. They want the same benefits of convergence as big companies, but without the need to staff dedicated internal comms teams.
• Technical challenge of integrating operator NGN capabilities into enterprises with fragmented legacy infrastructure (mixed TDM and IP voice) - but opportunity for high-margin SME managed services too.
• Unmet demand for new types of service provider who offers IT support as well as communications.
SMEs like to buy from other SMEs, but telcos haven’t built channels to fit this buying pattern.
• Users are resorting to arbitrage schemes and alternative access (e.g. Wi-Fi) to avoid usurious mobile operator charges, particularly when roaming.

Questions (In the minds of the telcos)

How to support digital workers in large corporations in a way that:
• Lowers the pain of provisioning and payment.
• Offers better internal and external voice and data communications.
• Allows, more seamlessly, interaction and collaboration with other workers from other corporations (including suppliers, partners) and freelancers.
• Securely extends the full range of corporate communications outside the office - at home, on the move and abroad.
• Support work-life balance

How to support digital workers in SMEs and SoHo so that you:
• Provide for all ICT needs support the daily job function in the absence of comprehensive internal resources: affordable, universal reach and portable between work settings.
• Provide a ‘big company’ feel to a growing company - replicating the core features of a corporate intranet.

Answer (Our high level view of what needs to happen)

• Learn from the unfolding story of BT’s 21C network as one of the most advanced NGNs.
• Apply more sophisticate qualitative market research techniques to seek to identify unmet user needs for digital workers, and then work out how to address them by whatever means available:
- Move from a network sales to a services and solutions mindset (“communications integrator”).
- Incorporate 3rd party technology, networks, services (“mashups”) as necessary
- Make the home office/remote worker an integral part of every corporate sale.
• Fast track a change in thinking:
- For cellular operators, accept that 3G spectrum may not provide all a digital worker needs.
- Allow competing retailers and systems integrators to make innovative use of wholesale network capabilities, despite rivalry from own-brand retail operation.
• Decide on where you want to play in each market:
- Pipe, Protection or Platform strategy?
• Experiment with new business models, embracing distributed bottom-up decision-making and service acquisition among end-users.
• Focus on identity and security technologies so that SMEs can enjoy what large corporates already have.

More here.

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Mobile Advertising - The Opportunity is Off-Portal

More context here in preparation for the ‘Telcos in Advertising’ workshops on 29th March, London (and 30th in NYC):

Writing our report, Telcos’ Role in the Advertising Value Chain has been like giving birth: arduous in delivery, but ultimately life-affirming. Thanks to Alan Patrick at Broadsight for his help with producing 140 pages of solid beef (worrying mix of metaphors with giving birth and cows here - time to stop).

During background research on the subject, I had the pleasure of meeting Andrew Bud of mBlox. Andrew is not only a charming man but something of a rocket scientist (comparable brain power to STL Partners’ own guru, Martin Geddes). He has built mBlox into the global leader in SMS billing services for mobile content, so knows a thing or two about being a platform player and building scale. He says mBlox’s success has been built on aggressive pricing and leveraging scale economies.

I was delighted to see that Andrew had reached similar conclusions as we have about the opportunity for operators in advertising: the money ain’t in Ad-funded content and telco services, it’s in enabling the on-line and mobile advertising value chain to become more effective and efficient. Compare the two charts below: one from our Telco 2.0 Advertising report and one from Andrew:



Uncannily similar and produced independently (honest). Essentially, we both feel that the market opportunity for operators is in leveraging under-used customer data and network, billing and customer service assets to support the advertising community as an enabler, rather than in discounting existing telco services with advertising (á la Blyk). This latter market will become horrendously competitive and operators have too much to lose. They would do much better to preserve their existing paid-for voice and messaging (on how to do this, see here) and content revenues and only use advertising to subsidise new premium content services such as IPTV or mobile TV.

Sizing the two markets is very difficult but here is our estimated split:


(For more background, see previous posts on this topic are here
and here.)

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The Telco 2.0 ‘Business Model Map’: Part Four, Action stations

In this final instalment on our Telco 2.0 Business Model Map we’ll look into some of the consequences for network operators. You’ll want to read our introduction, explanation and map timeline before reading this article. We’re going to stick with the ten-year-out map just for sake of typographical clarity, but the points apply to the industry evolution at any stage on the way.

The opportunity isn’t where you think it is

The received wisdom in telcoland is that bundling a triple/quad/n-play is the route to a profitable future. We’re less convinced. A few media owners control the blockbuster content (and the rest is on YouTube); telephony — even with feature add-ons — is coming under margin pressure on both fixed and mobile; and the broadband offering just sucks up capital without giving a good return (unless you’ve got a weak regulator and great lawyers).

We think the biggest opportunity lies in a different quadrant, where the apps are less tied into the network (“idiot savant pipe”, rather than “dumb pipe”) — but the billing and value-based pricing remain in place.

What operators need to do is to break up the broadband business model, horizontally and vertically:

  • Horizontally break it into tiers: free (ad-funded), subload (e.g. backups), standard best-effort, priority and full “QoS assured”.
  • Vertically slice it so it can be packaged with devices or services as “postage and packing included”.

This service-funded connectivity is crucial. Today’s broadband model is a user experience disaster for customers, particularly wireless ones. Users have no idea what speeds they need, how much it’s costing them in metered usage, and suffer bill shock when they sometimes find out. They need a single price, all-inclusive. This is not going to displace Internet access, but complement it.

The line passes through the IMS/QoS bubble; we’d see IMS being used here as a capacity reservation system of otherwise dump-pipe point-to-point links, but not as a session routing and management service (as with telephone calls).

Keep some of the pie rather than lose all the pie

This space maps directly onto our “customer intimacy” and “market control” axes from our Telco 2.0 Market Report strategies. (You can read a bit more in a previous blog post).

The various additional strategies in the bottom right help stretch the options for a “pipe++” play that takes the basic broadband offering and packages it in different ways. The “platform” strategy opens up the closed voice, messaging and entertainment platforms to outside innovation. “Protection” is about cost elimination and optimising the segmentation and pricing of the low-innovation legacy products.

What do you know about your customers?

The ability to perpetuate value-based pricing is going to keep telcos in the loop. Being able to slice up the offering and precision-price and package it will be crucial to bringing all kinds of internal and external innovation to market.

Telcos with a 360° view of the customer and their full spectrum of behaviour are going to be in a strong position.

Left-field is on the left

Finally, some of the more creative business models lie to the left.

BT are already busy getting attachment rights on government buildings in the UK in return for promising to build pubic-service networks. Wireless spectrum auctions in the US are seeing similar trends with hybrid public safety and private use networks. Community-centric networking is coming of age.

The absence of cell towers, call detail records and obvious billing points is likely to scare many operators off from the Personal Area Networking (‘PAN’) space. The lockdown of Bluetooth and Wi-Fi — mostly by US wireless operators — suggests a deep lack of ideas on how to approach this space. Most human interaction is face-to-face, not on the phone. Billions of new interactive, smart devices are going to be deployed in homes, cars and offices, and not every radio needs to be connected to the Internet. Until our personal devices can interact more fully over personal scales, we’ll be stuck with autistic technology. Someone’s going to get really rich here, and it probably isn’t you or me.

Finally we end with ‘Bottom-Up’ networking initiatives. FON and Iliad are the current poster-children for this, but you can bet there will be more entrants — such as BT. New models will emerge that don’t require fresh hardware, but open up what’s already installed. Femtocells will be deployed with new business models that reward those who create the network and have paying users roam onto your privately supplied connectivity. It’s an inevitable trend of de-centralisation of management control and network planning — one long-ago started with affiliate partners for build-out of US networks and growing with every Wi-Fi enabled home and office.

Over to you…

We’ve had a lot of fun putting together the Telco 2.0 Business Model Map. We’d love to hear your feedback: does it make sense, has it changed your outlook, what do you like and dislike, where are the gaps, and how can we improve it? And if you’re feeling really lost without a map, you can always get in touch.

Editors Note: We will be presenting these concepts and discussing them in detail at the Telco 2.0 Industry Brainstorm, 27-29 March, London. Details here.

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March 6, 2007

The Telco 2.0 ‘Business Model Map’: Part Three, Ten years of turmoil

This is the third in our series of articles depicting how the business model of the telecoms industry is fragmenting. The first article explained the need for the map, and the second article introduces the key concepts that label the axes. Now we’re ready to bring on the map. In the final article we’ll delve into some more detail as to what is means and how the business model of operators needs to evolve.

Just as a reminder, we’ve discussed:

  • The communications industry is part of a distribution system for bits — ones and zeros.
  • Those bits have value to the users, and sometimes (but not always) there is payment for those bits.
  • There are many “bit delivery systems” (e.g. broadcast, Internet, SMS) with varying degrees of vertical integration. The weaker the integration, and the more modular the technology, the more vendors there are and the more control the user has.
  • There are also many degrees of commercial integration between the services and the content delivery, with payment varying from fully integrated and automatic (e.g. SMS) to completely separate (e.g. fixed-line Web).
  • Strong technical forces are separating bit delivery from the services those bits represent.
  • The under-explored territory is where that separation occurs technically, but the commercial side remains integrated.

2007 is a simple world you’ll look back on nostalgically

Today we live in a telecosm divided between two major sources of revenue for network operators:

  • Full vertical integration of technology and payment for the “traditional” carrier services of telephony and SMS messaging.
  • Broadband Internet access.

It’s a bi-modal industry located at two extreme corners of our map. Yes, there are some other profit centres (we’ll come to them) — but they’re pretty tiny in comparison.

Watching telecom fragment into a dozen little pieces

So it’s time to start rolling our clock forwards and seeing what course the industry takes. What we see are many business models for delivering those valuable bits vying for attention. We’ll deliberately omit the legend, because it’s the big picture that matters, not the detail. Still, the two big ones today are those shown above: telephony/SMS and broadband.

(We blogged an embryonic version of this last summer.)

So it’s time to introduce some growth areas for five years out.

At first glance, no surprises. We see the traditional voice and messaging business as being roughly stable, with new growth diverted into quality-of-services enhanced systems such as IMS. (BT are turning on their 21st Century Network right now, so pretty much the entirety of the UK fixed telephony base will have shifted bubbles in five years from now.) IPTV is a growth area, as is broadcasting as mobile TV proves to be a reasonable hit. Broadband — fixed and wireless — continues to accelerate.

But there are plenty of other growth areas off that list. What can the rest of the spots on the diagram represent?

A journey of a thousand miles begins with a single step

If you know where the currents are taking you, it gets a bit easier to know how to set your sail, where to point the rudder, and which way to row. So here’s our best guess of what the telecommunications industry looks like in ten years, in terms of business model mix.

Now it’s time to describe all the rest of the points on our map.

  • In the bottom left are free (or subsidised) community or municipal networks. For good or evil, we think that governments will see high social benefit in ubiquitous adoption, and new business models are likely to emerge to support this. Communities themselves will also work together to provide the next generation of access. (The current generation being the widespread “linksys” and “NETGEAR” open wi-fi access points bringing you this very article right now.)
  • The bottom-up connectivity model is epitomised by companies like FON. As femtocells and other technologies mature, carriers will embrace hybrid models of network build-out.
  • There is a small exception case for services like i-mode or ISP email that use connectivity charges to cross-subsidise services. This is a commercial dead-end but lives on another decade.
  • In the middle of the diagram are personal-area networks (PANs) and other unrouted connectivity. Existing examples might include Bluetooth, Zigbee, or even short-range Family Radio Service radios. We agree with Motorola on this one: there’s likely to be an explosion of value in this space, and operators are so attached to big centralised networks that they’re likely to miss the boat. A whole new raft of players enter based on payments, games, next-gen walkie-talkies, presence sensing, and social media sharing. One to watch.
  • The growth in capacity of storage media greatly outstrips that of CPUs, batteries or dynamic memory. Within a decade, you’ll be able to buy a music phone with every song every recorded. Soon after, every movie will be thrown in too. Today operators sell devices where the memory is empty. It’s like Coke selling aluminium cans with a pack of sugar syrup and instructions to “just add water”.
  • In reaction to the “one-size-fits-all” nature of IPTV, peer-to-peer content delivery grows — and the networks evolve to support rather than throttle this behaviour. The content delivery networks (CDNs) incorporate P2P functionality, and everyone is happy.
  • Two big growth stories will dominate: one is already on the radar, of ad-funded services and connectivity; the other is service-funded connectivity where the user pays the price they see — no hidden postage or package charges, no bill shock, no metered usage anxiety.
  • An increasing number of devices will come with connectivity embedded as part of the deal, and no recurring charges (at least initially). This is the reverse of the cellular model, where the hardware is subsidised by the service fee. In practise many of these devices will be part of bigger home or automotive services where the cost of billing isn’t worth the hassle when the connectivity only forms a small part of the overall solution cost.
  • Finally, the shark’s fin in the water. Various forms of tiered connectivity are going to emerge at an alternative to full-blown carrier-controlled QoS. Rather than recap everything here, go read our article on Paris Metro Pricing for some insight into the area.

Understanding the limits of the map

You know how Greenland often looks about the size of South America?

In fact, it’s about 12% of the area. Well, we’ve got to confess to some cartographic sins and limitations too:

  • We’ve drawn each of the “business models” as a circle, but in fact within each there are often several differently-positioned sub-models. For example within media-based content, a pre-recorded DVD more tightly couples payment and delivery, as well as medium and content, than a re-recordable DVD. You can’t use the size of the blob to represent importance at the same time as making it bigger to encompass the whole space that business model occupies. (With a bit of graphic design skill maybe we’ll do a future 3D version that fixes this.)
  • There are many sub-models within each business model — just look at the difference between the 800/freephone number market from that of the premium-rate call market. We can’t show all the detail on a world map.
  • There may even be shifts in position, for instance as payment APIs are introduced as part of near-field communications services.
  • We’ve lumped everything into one map, fixed and mobile. We think mobile triumphalism is exaggerated — the model will be unpicked, and fixed operators will learn their billing and packaging tricks. At the risk of using the ‘c’ word, they’ll converge.

In our next (and final) article we’ll go into some more detail about the important things to look for in the map, and give you a quick guided tour of the world.

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The Telco 2.0 ‘Business Model Map’: Part Two, Bits and Money

It’s a bit cruel, we know, but we’re not going to show you the full Business Model Map quite yet, despite the promise last time. We first need to get clear about what we mean by the two axes of the map that borrow from the latitude and longitude metaphor.

The axes of the Business Model Map

We want to describe some new archipelagos and islands that telcos need to explore. Our thesis is that operators need to:

  • slice and dice the broadband connectivity offering in different ways, then
  • package it in different ways together with devices, software, services and
  • distribute it in different ways via the standard channels and sales methods.

Thus they assemble a portfolio of business models for paying off the network.

We’ll go into more detail once we’ve done the map (next article in the series, I promise).

Don’t just take it from us

Network providers want value-based pricing for traffic and knowledge of what’s flowing over the network; users want a free ride and to hide what they’re up to. We’re far from being the only ones seeing this tension between the technical and economic design decisions in building networks. For instance, Andrew Orlowski in The Register knowingly winds up the end-to-end principle founders in this diatribe:

This neatly and accurately describes the guiding principles of the first packet network pioneers, who sought to create a decentralized and “dumb” network.

The “principle” was already redundant by the time the paper enunciating it was first published in 1984, however, and so it’s fair to say that none of today’s packet networks are “end to end” or “dumb”.

If they were, they wouldn’t work, and you wouldn’t be reading this now.

But “End to End” has taken on a quasi-religious significance over twenty years. It’s not just a buzzword, it’s a way of life!

Tomi Ahonen eulogises over closed mobile services as the emerging 7th mass medium:

…the mobile is the first mass medium with a built-in payment mechanism [our emphasis]. This is a massive iceberg totally not understood by most even within the industry. Never before was there “click-to-buy” ability in any media. … What combines not only the convenience of the credit card — twice as many people have mobile phones than have credit cards, and kids as young as 7 years old have mobile phones while credit cards tend to have an 18 year age limit — but also the convenience of the credit card reading device?

We don’t necessarily endorse these views — indeed, in places we’d violently disagree — but they’re illustrative of what the top journalists and consultants think. Indeed, they were anticipated and documented by those who first articulated the end-to-end principle, and who described how users would always want to evade the pricing mechanisms:

This discussion illustrates the observation that there may be no such thing as value-neutral design. The design and deployment of tunnels (or other mechanisms to mask what services are being used by a consumer) shifts the balance of power from the producer to the consumer. Given that value pricing is not a moral wrong, should the consumers be aided in their quest to bypass the controls of the producers? Those who see the consumer as “the little guy” being abused by the “big providers” will design such mechanisms, and this is part of the tussle [of network design], not something that happens outside the tussle.

Our job is to put this into context and offer some constructive ways forwards.

Functional integration of Technology first

Getting the valuable bits delivered to the right places at the right times in vaguely the right order has always been a challenge. Every time the underlying transmission technology improves, we think of new ways of soaking up the capacity and creating a new capacity crisis at the cutting edge. Just when you thought HDTV was the worst-case capacity need, your local electronics store is trying to sell you whole-wall immersive displays.

Because of the difficulty of making any form of communications work in the analogue era, every part of the transmission and reception had to be built to a single purpose. For example, broadcast FM radio is a tightly integrated service:

A dedicated transmission infrastructure sends signals encoded specially for reception in single-purpose listening devices. At the other extreme might be how we read Web pages such as this one.

Whilst all the parts have to work together, they interface using multi-purpose components with standardised interfaces. Your PC can run many applications, your web browser can render many media types, and the whole system doesn’t need to progress in lock-step: there’s flexibility for different parts to advance at different rates.

Now, nothing is absolute. You can create a radio that does unexpected things (such as taping shows) demonstrating ‘loose coupling’, or you can endure unexpected integration of content and hardware on your PC when some DRM scheme kicks in. The above models are simplified: there can, of course, be different transmission and reception media and devices; more layers of UI, operating system, and content packaging; and different forms of integration. Our map is a manual survey of the shape of the world, not a high-resolution satellite radar scan.

For another example of technical integration, take a look at the recent and interesting paper by George Salisbury, a consultant to Detecon (a Deutsche Telecom company). He has analysed over 220 different communications services to see the trends in technical vertical integration. How many services in future are likely to be dependent on QoS promised from the network? Unsurprisingly he saw a strong move towards more modular, open and loosely connected value systems. It’s worth checking out some of the thoughts on tiering at the end, as we’ll be re-visiting those.

Making the money follow the bits

For our other axis we’ve picked by far the most important non-functional aspect of any communications system - the money. How does the money for the service follow the cost of sending the bits?

Let’s take a physical-world example first. The free postage offer from Amazon shows a high commercial coupling of the transmission (delivery) with the service (product). I pay for both in one transaction, and never even know how my money is really allocated between them. The “FREE” is an illusion we are happy to live with. Yet there is no technical integration of the delivery and product. UPS doesn’t need to start up a special delivery service for this product line, nor for “free postage and packing” items.

Back to telecoms. Take for example a short mobile phone call:

The user is charged 5¢, and this is automatically channeled into a handset subsidy payment, the “postage and packing” costs of physically delivering the message, together with a termination fee to the recipient network. Some is retained as profit. This is what has Tomi Ahonen so excited above, and what I personally was trying to do for mobile web pages back at Sprint five years ago.

There can be many patterns of how money flows between the sender, medium, delivery agent and recipient. Telephony sees many of them: freephone calls, international toll calls, premium rate calls, reverse charge calls, and so on. Yet we don’t see the equivalent of the freephone call for mobile data — yet. Which is precisely where we want to take you!

Note that the user doesn’t need to separately provision any kind of payment in a tightly commercially integrated system. However, they certainly can if they wish to and bypass the operator. For example, I’ve been using Vyke to bypass expensive roaming costs and send SMS messages over GPRS for pennies using my Vyke pre-paid balance. What operator’s can’t do today is strike a middle ground, and offer me a high-quality, low-latency virtual pipe over which to run mobile Skype — whilst (and this is the key bit) letting my email and daily remote backup operate separately at lower cost.

The converse case from high integration might again be a PC, where you separately pay for the hardware, software and connectivity with no cross-subsidy. This is an example of low commercial integration of the parts. Companies like Dell foist endless pre-installed goodies onto their PCs in the hope of up-selling you some more software. This is an example of media-based distribution — one of the patterns for moving bits — coupled with a particular commercial model (free trial).

Our map aims to show all the main combinations of the technical transport medium and commercial model and how they change over time.

The best of both worlds

What we really want is to keep the network relatively dumb because that makes it flexible. We want just enough network smarts to help us keep out nasties of spam, fraud and mischief. At the same time we want to keep the goodness of some kind of integrated payment and value-based pricing. These are what gives us the rational economic model that has served the mobile world so well to date. And in our next article, we’ll finally get to see the land at the far side of the ocean.

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