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May 31, 2007

The Telco 2.0 methodology — Business Model Innovation

In our previous post on Telco 2.0 methodology, we described the 15 key Telco 2.0 transformation issues and how the industry currently scores against them. ‘Appreciating’ these issues was Step 1 in our Telco 2.0 A-C-T process to create a sustainable growth strategy. Step 2 is ‘Clarifying’ how to approach business model innovation, a tricky subject for any industry that we discuss below. Step 3 is ‘Test’, and you can find a record of all the latest developments across these steps on our constantly updated Telco 2.0 research portal here.

To start with we need a framework to guide our thinking. To help with this we’ve drawn inspiration from our friends at arvetica on an overall business model ‘framework’. (View their slide deck, it’s very good.) We find the diagram below extremely useful in getting our clients to understand what are the one or two things they do exceptionally well, and what other areas they need to make sure are considered in re-designing their business models:

How do we use this framework?

First we need to understand the components in more detail.

On the left of the chart above you have the supply-side issues, and on the right the demand-side ones. Different companies perform to different levels in each of the essential component areas of a business model. You can typically only be world-class or strategically differentiated in one (or at most two) of these areas. Here are some examples to bring the diagram to life:

  • In the middle is the value proposition. The core proposition of ‘mobile telephony’ has been highly successful to date and is the proposition we’re all looking to build on. Examples of other successful ‘value propositions’ from the telco world include Nextel’s walkie-talkie service, Direct Connect and Motorola’s TETRA public safety networks. For Media value props you could choose The Wall Street Journal (editorial independence and excellence of analysis) or The Economist (the perfect bundle of important news for important people).
  • Intel has access to chip design and manufacturing technology that is only marginally differentiated from its competition. However, they have excelled at partnerships with PC manufacturers, Microsoft and retailers by embedding themselves into the value chain and in the consumer’s mind. Good examples in Telco are DoCoMo (with i-mode) and the UK retailer Carphone Warehouse (with its multi-operator product offering). In Media an example is the almost limitless merchandising by Lucasfilms around the Star Wars franchise.
  • Apple’s design abilities are an example of capabilities that others find hard to replicate. In telecoms AT&T/Bell Labs (pre de-merger) were the leader in all things electronic and optical, and today Qualcomm’s CDMA patent portfolio shows off strong ‘capabilities’. In Media you could pick Pixar with its CGI animation skills. (Most of the Network Equipment Providers are very strong here, of course. Their challenge is to create skills to support their clients in the other component areas of new business model framework if they wish to truly add value and differentiated).
  • Cisco is the daddy of supply-chain configuration. In telecoms Sprint PCS (with its multi-level affiliate network build-out model), Telenor (buying exclusive football rights), Nokia (with its mass-market handset efficiency), and Yahoo! in Media (acting as the aggregator and integrator) demonstrate strong ‘supply chain configuration’ skills.
  • Wal-Mart is the master of the cost model. For example, their trucks always drive with headlights on because they’ve worked out that the cost of fewer accidents outweights the extra fuel consumption. They recycle boxes and palettes while others are throwing them away. You don’t get to keep the hanger when you buy a t-shirt from them, as it goes straight back to the rack.

In telco, EasyMobile tried (but failed) as an MVNO with its web-only sales and support, while Vodafone reaps the benefits of scale in procurement and is driving family and workgroup plans through lower on-net call costs. Iliad in France offers a superb example of creative thinking in telco, in terms of building out its network at low cost (buying up distressed assets, eshewing the normal equipment vendors, and using open source software and developing in-house).

In Media, it’s worth looking at companies like Moviebank , an automated self-service DVD rental service.

  • By moving to the Web, Dell achieved a distribution model that outpaced rivals. As a by-product of build-to-order their supply chain was leaner and more agile, requiring less inventory and working capital. In telecoms, examples of creating distribution strength include Swisscom hotspots (with their exclusive deals with leading hotels) and Verizon Wireless (perceived as the coverage leader - we’ll explain why this is ‘distribution’ at the end of this post). In media, you can look at News Corp (with content delivery via satellite) or the newspaper companies who provide free papers for commuters.
  • Gillette manages to maintain a customer relationship through the razor handle/blade system (you’re reaching for the Gillette brand every morning), which they then extend into adjacent markets like shaving cream and deodorant to achieve premium margins. You can only salivate at the margins on those replacement blades! Tesco Mobile has been successful by combining its MVNO service with in-store Clubcard loyalty programme. Virgin has a brand with strong cross-industry appeal. Disney (with its branding and characters) sucks you/your children in in the same way.
  • By bringing together searchers and advertisers in a unique way, Google became the master of the revenue model. Like a cargo cult, others busied themselves replicating spartan design or clever matrix algebra without understanding the increasing-returns-to-scale of Google’s advertising hub. In telco, we can look at Blyk (a new ad-funded mobile service) and 3 UK (with its revenue-sharing model for termination fees and user content).
  • In terms of finding new customer segments, Easyjet was the great pioneer of low-cost short-haul flights in Europe. In telecoms, Amp’d (the premium MVNO in USA focused on content and entertainment with $100 ARPU), Tracfone (the Latino-centric operator in USA) and O2 in the UK (with its SMS bundles attractive to teens) are good examples, as is the BBC in the media sector (Multiple radio + TV channels covering all ABC1 sub-segments).

Having looked at the components in the business model framework, let’s see how they are applied across an industry. To bring some perspective, we’ll start with the airline industry and then look at telco.

Business Model change in the Airline Industry

  • Some airlines in Europe attacked new customer bases and segments: Ryainair for the price-conscious, Easyjet for the frequent shorthaul business traveller, Maxjet for the aspiring intercontinental business traveller.
  • Many airlines used to build reservation systems, operate catering, own travel agencies and retail stores, and have in-house maintenance. Now those capabilities are typically outsourced and they focus on narrower parts of the value chain: capacity planning, marketing and financial risk management (e.g. oil price hedging).
  • They have then partnered with other airlines to offer through-ticketing and shared frequent flyer programs to enhance their network effects and customer loyalty.
  • They have also increased their distribution channels by partnering with credit card companies — offering flyer miles for purchases to extend their “reservation” model .

Airlines have also innovated in their revenue model. Many airlines, especially in the US, have been kept afloat by the credit card companies in hard times. This is because credit cards offering frequent flyer miles for purchases have been immensely successful. (Flying appears to be a not-for-profit activity compared to creating funny money!)

The trick is to sub-divide a product and re-sell it at a higher mark-up. You might have thought that an aircraft seat is hard to split up, but airlines don’t just sell “A to B transport”. They sell tickets, which are options to fly — i.e. seat reservations which can be redeemed against specific flights, or any flight, or even multiple flights on different airlines with interline or partnership agreements. Airline miles are just micro-divisions of those options sold at a huge mark-up.

A broadband pipe is likewise just a sequence of options to communicate that you may or may not choose to exercise, and a phone call or text message is a very expensive way of buying sub-divided bits of connectivity. By slicing and dicing the pipe into smaller chunks and bundling them differently with applications and devices you can gain higher margins (more on this in forthcoming posts…).

Applying this Framework to Telecoms business models

For each of the 9 component parts of the business model framework we need to consider a set of telecoms-specific questions to help form a view of a.) the markets we might wish tackle and b.) the way we might tackle them. Here are examples of the questions, none of which are black or white:

* Capabilities: A key question revolves around network technology, eg. HSDPA or WiMAX?
* Supply Chain: Open-source IT tools or NEP-centric telco solutions?
* Partners: Open Platform or Controlled ecosystem?
* Cost Model: Optimise costs (eg. more efficient call centres) or Eliminate costs (web service only)?
* Value Proposition: Traditional comms or Original/Differentiated (see our ‘Blue Ocean’ example here)
* Customer Relationships: Personal (eg. SK Telecom asking customers to submit new feature ideas) or Impersonal (eg. pre-pay).
* Customer Segments: Should we going macro or micro? Broad market appeal or Niche?
* Revenues: Upstream (eg. advertisers) or downstream (consumers/business)?
* Distribution Channels: Centralised or distributed?

So, which of these 9 component areas is the best place to start and/or the most important?

The temptation is to start with Customer Segments, and conduct large customer research studies. Clayton Christensen, Harvard Professor and author of ‘the Innovators Dilemma’ recently warned us against this:

“The creation of new business models is substantially different from the innovation of new products or services. Most new products and technologies can be sold through the existing business models. In fact, the corporation will reject process or resource allocations that don’t fit its business model. A powerful reason why companies aren’t good at business-model innovation is because the kind of products that are required to be the seed of a new model can’t get through the resource allocation process.”

“Your customers will never lead you to a new business model. Customers always are important, but the ones that will value a new business model will be very different, and their significance will be different.”

“A better approach [than asking customers what they want] is to understand what ‘job’ they are already doing, what products they currently ‘hire’ to do those jobs, and where are the gaps between the two.”

So, this suggests starting somewhere else. Since telecoms is fundamentally a distribution business - it distributes bits and bytes from A to B - the winning approach tends to consider the Distribution area first. Verizon Wireless’s ‘Can You Hear Me Now?’ campaign was far more effective than Sprint’s PCS Vision campaign. The former was about coverage — a form of service distribution. The latter was about a value proposition around smart features.

Now, the critical thing to recognise is that in telecoms ‘Distribution Channels’ should be sub-categorised into 4 distinct but interrelated elements:

  • Retailing (store and web)
  • Provisioning
  • Payment (Payphones, ATM top-ups, online top-up, convenience store top-ups, street vendors)
  • Transport (cellular, broadband, broadcast, physical media).

In the next post we’ll describe the Transport aspect of this in more detail, as this is where the big fundamental changes in the industry are occurring. Later in this blog series we’ll look at some sample new business models and how they relate to the framework above.

In the meantime, let’s end with a quote from Mr Christiansen again:

“Skate to where the money will be, not where it is now”

And if you’d like to know where the money will be next, check out the latest developments at our constantly updated Telco 2.0 research portal here or call us on +44 (0) 247 5003.

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May 28, 2007

Open platforms — APIs are not enough

Five years ago, everything in mobile was about the flood of innovative applications we could expect from 3G. All eyes were on the services space. The reality was that 3G data was more about driving handsets sales (feature ticklist), and the high margins were in the “dumb pipe” business of roaming mobile enterprise users (datacards and Blackberries).

The space between these two extremes is the platform business that a few telcos are only now just beginning to embark on creating. Keep yourself in the value chain by being a supplier of identity, payment, content delivery, personalisation, advertising, and adaptable wholesale connectivity capabilities. Enable a partner ecosystem which addresses the myriad niches a one-size-fits-all product strategy can’t reach.

Over the weekend I was installing some extensions for my email client, and I thought it would make a good case study in failing to drive home strategic advantage of a platform strategy because of a poor user experience and execution. In this case, Mozilla (who make the Firefox browser and Thunderbird email client) have screwed it up on an epic scale. Learn from their mistakes.

This is important. The real threat to operator cash cow services from Internet players does not come from VoIP arbitrage (e.g. Skype), or even the stagnating portal players (Yahoo!, MSN, et al) and their hybrid IM/VoIP clients. It’s from social networking and self-expression companies like Facebook, with deep relationships with their customers (far deeper than telcos or traditional nemeses like Nokia). They’re learning to open up their platforms. As one VC puts it, choosing between supporting a platform-centric partner-friendly business model, and one that isn’t (like, say, a telco) “isn’t a decision, it’s an IQ test”. You’d have to be stupid not to choose the former.

Ultimately every social networking or commerce hub will seize the user interface (via the buddy list or directory) and control who gets the revenue from communications. Today, the fight is on in every segment to become the hub for relationships — kids, teens, twentysomethings, B2B, consumer to SME and consumer to enterprise. Some of these may become “the next Microsoft” as impossible-to-bypass pinch points in the communications value chain.

From Cluetrain to Smart Mobs, to Communities Dominate Brands — the runes all spell the same thing: open up, engage others in co-creation of value, share the rewards.

Anyhow, enough of strategy. Back to execution.

The browser wars between Microsoft and the open source community (as offspring of Netscape and Google) have gone on for a long time now. Mozilla’s Firefox browser has recently been picking up a significant market share from Internet Explorer, just crossing 25%. One of the key reasons it that the core browser was kept relatively lightweight, and then you could add on the extra capabilities that you wanted — rather than shipping a thousand buggy, insecure bloated features that (almost) nobody wants. They’ve then taken this model to other products, most notably their email client, Thunderbird.

So having heard that there’s a new calendar feature, I thought I’d check it out. Now, remember that there are only three things that drive people to use Firefox and Thunderbird:

  • Irrational dislike of Microsoft. Small but vocal minority.
  • Desire for standard browser features like tabbed browsing and faster rendering, which Microsoft have largely matched in IE7 anyway. (Thunderbird does IMAP email access well, whereas Outlook is a disaster when not coupled to Exchange.)
  • Some extension or other capability you can’t otherwise get. The only place to go is Firefox or Thunderbird.

Extensions tightly lock users and developers into the Mozilla ecosystem, as well as driving the user needs and product roadmap (as top extension features get folded into the core product). Anything that stands between a user and an extension installation is a strategic disaster.

So, let’s say I’ve heard that there’s a new calendar extension for Thunderbird that I might like to try out. I go to Google and search for “thunderbird extensions”.

First problem. Mozilla has created two different places on their own web site. Which do I choose? Lose 25% of your installs at this point. Click on the second one — I’m looking for extensions, not add-ons, after all.

When we get there, there’s another choice of two places to go, with no indication of which one to follow. When we get through to the extensions catalogue, there are some categories, but none of them obviously correspond to calendars. The only search box is a generic one for the whole site, not just extensions. And there are far too many extensions in each category:

Do they seriously expect you to page through all these looking for what you want? Furthermore, the calendar application from Mozilla themselves is cryptically called “Lightening” — not “Mozilla Calendar”, or even “Mozilla Lightening”.

Now we get to the really horrible bit. Glance down at the next image for just a moment, and what’s your first reaction?

Same as me, I guess? Click on “install now”. Nice try…

The instructions above tell the story. Don’t click on the “install now” button! Nope, we’ve not worked out how to package up extensions that aren’t for the browser, but rather for the email client. “Install now” tries to install the email client extension into the browser, which is rejected. This is embarrassingly poor. (I’ve still never got the British English dictionary working in the email client as well as the browser).

This isn’t a localised problem. The #1 strategic lever Firefox has in the mass market over Internet Explorer is these extensions. Surf to an extension outside the formal catalogue, and what do you get?

Click to view.

A pointless message telling you that we’re not going to ask you if you want to install this. Why not just damned ask “Click here to install.”? Even worse, the only option you get when you click the box is this:

Permanently approve all future requests to install extensions from this site! Madness.

This isn’t the only set of things that are wrong. For example, you can’t navigate through to extension preferences from the preferences menu — you have to be telepathic and know that the options for extensions are under the add-ons menu.

In summary, you need to get several things right if you’re building such a partner platform:

  • Consistent branding of platform-enabled services
  • Clear and consistent terminology
  • Search-engine optimised portal or partner sites
  • Easy navigation and search of partner services
  • Constrained choice, or at least some kind of recommendation to users.
  • Simple user experience for provisioning.
  • Certification program that separates “own brand”, “approved” and “other” categories of partners (a-la i-mode).
  • Proper integration into the self-service and management capabilities of the base platform.
  • Security model and certificates for all parter extensions that don’t just let them romp all over the user’s device, but declare what access you’re granting them.

There are some things that Mozilla get right. For example, the system for managing upgrades of extensions is superb. But five years from now, Mozilla’s application suite will have gone the way of Netscape — probably trampled on by packaged custom browsers aligned to each user’s favourite social networking hub.

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May 24, 2007

Career Opportunity - GSM Association Content Director

Our friends at the GSM Association have a new role to fill - see below. If you’re interested, please send your CV to Michaila Stanton (no recruitment consultants, please, they’ve got enough of those, that’s why they asked to put a post on this blog):

GSM Association - Content Director Role Description (London based, full time position)

1. The Organisation & Background

The GSMA is the operator-led trade association for the global mobile industry. Our membership includes more than 700 network operators that provide mobile communications services across more than 213 countries and territories.

Together, our members serve more than 2 billion users - almost 1/3 of the world’s population and over 80% of the world’s digital mobile market.

The Association also embraces more than 200 manufacturers and suppliers to the industry as Associate Members. These include many of the world’s leading mobile equipment manufacturers and IT providers including Ericsson, Intel, Nokia, Motorola, Microsoft, Siemens and Nortel.

The GSMA is governed by a 23-member board, comprising CEO / executive representatives of some of the world’s leading mobile operators in addition to the GSMA’s CEO. These include AT&T, China Mobile, NTT DoCoMo, Orange, Telefonica, Telecom Italia, T-Mobile and Vodafone.

The Board’s agenda encompasses business, strategy, technical and public policy objectives, as well as the GSMA’s traditional roaming and interoperability remit.

The GSMA’s work is focused on two broad areas: Emerging Services and Emerging Markets. The association helps its members develop and launch new services, which will work across networks and national boundaries. Examples range from mobile instant messaging to video sharing to mobile Internet access among many others. Working closely with world leading operators, our role is fundamental in aiming to reduce the barriers to take up, whether caused by usability, interoperability, cost or regulatory issues.

At the same time, the GSMA is heavily engaged in the industry’s push to extend basic voice and text services to more people in emerging markets. Examples of these initiatives to help “bridge the digital divide” include the GSMA Development Fund and the Emerging Markets Handset Programme.

Via its wholly owned subsidiary, GSMC, the GSMA also owns and produces the world’s leading mobile communications events, namely the 3GSM World Congress and 3GSM World Congress Asia. Held annually in Barcelona, the 3GSM World Congress is attended by more than 50,000 senior executives from across the industry making it the world’s largest mobile event. For more information about the GSMA, please visit www.gsmworld.com

2. The Role

The GSMA is seeking a senior and talented industry professional to lead its Content Team which comprises a key part of the GSMA’s wider Marcomms Team. The content team’s work is focused on researching and analyzing the mobile market to input first class knowledge into the development of GSMA activities. The outputs from this research include creating and delivering the agenda for the prestigious world congress events as part of the services provided to the GSMA’s conference business subsidiary. It also includes providing support to the GSMA’s executive team (Chairman & CEO etc.) in terms of highlighting appropriate speaking opportunities and preparing content and messaging.

Reporting to the Director of Marketing Communications, the Content Director will lead the Content Team to achieve the following:

(i) Inform the conference agenda’s and core work of the GSMA, a critical component of the content team’s remit will conduct research into key areas of the mobile telecoms industry and competitor events

(ii) Drive content development and delivery for events portfolio of the GSMA’s conference business both for the existing events and new product development

(iii) Executive content support, including for the Chairman and CEO

(iv) The management of the GSMA’s entire external speaking engagements strategy and programme including speaking on behalf of the GSMA from time to time

(v) In due course, the strategic approach and management of editorial content for the congress publications

(vi) Speaker management pre and at the congress events

(vii) Content for other GSMA requirements and promotional material, e.g. annual report, business plan, Conference Business collateral

3. Criteria for selection

(i) A minimum of 7 years in the Mobile Communications Industry, including at least 5 years of experience as either a journalist or analyst currently holding a senior position of influence

(ii) In-depth understanding of the mobile communications market

(iii) First class analytical ability and writing skills

(iv) Strong interpersonal and relationship building skills - able to interact with a range of people at various levels from CEOs to technical experts.

(v) Have a strong reputation in the industry with excellent current contacts

(vi) Be proactive with considerable drive and initiative.

(vii) A collaborative team-based approach to work

You will need to be flexible in working in global teams across different time zones and, whilst the role is London based, have the flexibility to travel as and when required.

4. Package

An attractive and competitive salary in addition to:

(i) Bonus scheme

(ii) Private healthcare

(iii) Health insurance

(iv) 26 days holiday

(v) Pension.

Interested candidates should email their CV to Michaila Stanton.

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Digital Youth: Exploring New Business Models

We have started to think through the format for the Digital Youth Summit at the next Telco 2.0 Industry Brainstorm in October. As we pointed out in a previous post, we want to move the debate on in this event and challenge participants to work on creating potential new solutions that drag them into the ‘Telco 2.0’ world. We’ll apply a new Telco 2.0 ‘Business Model Framework’ which we’ve been using with a lot of success with consulting clients recently (we’ll preview it in this blog later).

At the last Digital Youth event in March, we looked at many of the issues and opportunities for operators in serving this market segment.

This time around, based on input from our community, we want to focus more tightly in the following way:

Focus on a Sub-Segment: Students & Young Adults
The broad ‘Youth’ market is far from homogeneous, as it covers school children, school leavers, students in tertiary education (university) and those embarking on their first job. We think it makes sense to focus on the last two sub-segments because:

1.) They are making their own decisions about telecommunications and are either earning or have a bank loan or parental allowance - they control the purse-strings;
2.) They are inherently more valuable than the younger sub-segments;
3.) They are on the cusp of evolving into other adult segments and so offer the greatest immediate insight into what the Telco community needs to do to evolve their proposition in a Telco 2.0 world.

There is also a great opportunity for operators to get ‘em as customers when they are about to have their own money to spend and keep them during lucrative adult years. This is the strategy of the financial services community which offers attractive loan rates to students and first time home-buyers. One advantage that banks have over operators is the (real or perceived) difficulty of switching banks - how many times have you changed banks? - which makes a high investment in ‘youth’ feasible. Retaining these customers as they move into higher income groups will be a key challenge for operators going forward.

Input from a Wide Selection of Youth-Focused Organisations

We are attracting stimulus presentations from specialists in the Youth segment in adjacent industries or with a deep understanding of the underlying needs, attitudes and behaviours of students and young adults. This includes Non-Governmental Organisations (NGOs), such as UK Youth a charity seeking to helping young people realise their aspirations. We are also speaking with specialist analysts such as Culture Group a communications and media agency focused on the youth segment or Mobile Youth which focuses on how young people are using mobile telephony and what companies are doing to deliver solutions for them. Incidently, most of these sites have some great background and stats on the youth market.

Last time we were lucky enough to have SonyBMG, Habbo Hotel, Yospace!, and Moblog UK present. This time, we will seek out even more stimulus from music, media and internet companies competing (and winning) in this segment - companies such as Virgin, Warner, Disney, MySpace, Facebook, Second Life, Joost and Bittorrent.

We will also get input from operators and MVNOs that focus on youth. Examples include: Orange, 3, Helio, Blyk, Virgin, Apple/iTunes, T-Mobile, NRJ Mobile (in France) and Amp’d Mobile in the US. Device manufacturers will also be involved, of course.

Purpose of the Day

‘Success’ for the session will be to:

  1. Understand students/young adults better - what they do, think, feel, need
  2. Identify how they are communicating/interacting and the tools/technologies they leverage
  3. Clarify the issues/challenges in targeting and serving this segment
  4. Learn from existing best-practice in Telco & Media and other industries
  5. Develop a credible potential telco-centric value proposition, based on our framework, covering:
    1. Products, services, content
    2. Marketing & Distribution
    3. Customer Experience - sales and service
    4. Business Model
    5. Partnerships
    6. Marketing Communications

Creating a Student/Young Adult Value Proposition

The last point about actually creating a student/young adult value proposition is the piece I am most excited about. Fostering a spirit of action and change amongst delegates is possible by focusing on something very specific.

After we have had presentations on youth customer needs, issues in serving this market, key tools used by the youth for communication and self-expression and best-practice case studies, we plan to present 3 new draft ‘solutions’. Each solution will describe a value proposition based on the 6 points above. STL Partners will do one of the three to get the ball rolling and two will be from third-parties. We will then debate the merits of each and delegates will have the chance to vote on them.

Finally, as a group, we will work up the most popular one into a more robust value proposition with a plan of what needs to be done to bring this to market. The output will, therefore, be a very tangible proposition and implementation plan that should be scaleable across multiple telco/media organisations.

Value Proposition Principles

We will spend the next few weeks defining the assumptions and constraints for the 3 potential value propositions that will be developed for the event. Here are a couple of early pointers:
1. Customer Objective: Enable students/new-leavers to develop stronger social network(s) using services provided by Telcos and their partners.
2. Business Objective: Acquire new customers; Develop strong customer loyalty and high switching costs (discourage young people from switching to alternative providers)
3. Value Proposition: Community-focused Comms solutions built around student/youth values of music, social networking, texting, etc.

Any feedback on this or suggestions re agenda/speakers/outputs for the day - please do get in touch.

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May 23, 2007

Interview: Russ McGuire & Sprint Nextel SAWS Platform

We recently had the pleasure of talking to Russ McGuire, Director of Corporate Strategy for Sprint Nextel. Russ is a fellow blogger, and also is an industry authority on pretty much any issue you choose to discuss. We asked him how how Sprint Nextel is looking at the market through a Telco 2.0 lens. He directed us to the Sprint Advanced Wireless Solutions (SAWS) as an example of applying a platform and partnership approach to the corporate market. We liked it for several reasons: customer needs focused, opening up core IT and network functions to 3rd party enterprise applications, organisational change to support delivery, and a proactive approach to partnership. Who cares about being a dumb pipe if you’re making your money from your customer support and IT capabilities?

Russ has kindly taken the time to answer some questions on the programme and share the lessons with Telco 2.0 blog readers.

What does the program offer?

SAWS is designed to be an end-to-end solution for businesses wanting to capture the power of mobility. A SAWS engagement starts with a discussion of whether the customers’ needs are well addressed by one of the SAWS solutions, which may include Advisory Services, then moves into pre-implementation preparation, implementation including integration with the business’ existing operations, and finally includes ongoing managed services to ensure that the customer continues to have Sprint’s full support in safely and reliably operating their mobile solution.

The SAWS program includes identifying and integrating the right hardware, the right software, the right network connectivity, and the right ongoing management to ensure that the solution helps our customers be more competitive and profitable.

What was the customer impetus for the program?

Businesses are increasingly aware that building mobility into their offers creates new value for their customers and can increase their productivity and profitability. That doesn’t mean it’s easy. The combination of choices between devices, software, and services is overwhelming. And since the mobility revolution represents not only new power, but also new dangers, the whole process can be downright scary. SAWS takes away the confusion and the fear.

Sprint has focused on a set of horizontal solutions that apply to a broad range of customers needs. We’ve focused on a set of partners and their applications that we’ve learned over the years create real value for our customers that we can confidently offer to our customers. Our depth of knowledge, strength of relationships, and practical experience translate into a better experience for customers from initial evaluation through to ongoing support.

How does it work in practise?

Here’s an example. Let’s say a Sprint customer is talking to her Sprint account executive and mentions that her team is trying to figure out how to use the power of mobility to make their IT desktop support group more productive. She’d love for their support staff to be able to move from problem to problem, focused on fixing the problems, rather than having to return to their desk to fill in the resolution information, close the ticket, and pick up the next ticket requiring attention. The Sprint rep says “Oh yeah, the Mobile IT Helpdesk. That’s one of our Advanced Wireless Solutions.”

The rep then contacts the SAWS organization and gets a SAWS principal involved. The principal participates in a follow-up conversation with the customer to better understand the customer’s needs, the existing operational environment, the size of deployment, any special equipment needs, the budget, the timeline, existing expectations, etc. If everything sounds like a fit for a SAWS solution, the discussions turn into a proposal, a statement of work, and then an agreement to move forward. SAWS engagement managers coordinate any necessary kitting and staging, training, integration with the customer’s back end systems, deployment to the field, etc. And then the operations group takes over to provide the managed services.

What’s the internal effort required?

Obviously, this is very different from selling a handset with a plan. We have established a separate SAWS business with P&L responsibility. In many respects, this business operates independently - managing its portfolio of offers, its positioning in the marketplace, its pricing and proposals, its operational, professional services, and managed services capabilities. But, it leverages Sprint Nextel’s existing market presence in some very important ways:

  • SAWS has a relatively thin overlay sales organization that supports the existing sales force serving our growing base of business customers.
  • SAWS leverages existing relationships with device and application providers.
  • SAWS leverages Sprint’s existing systems capabilities so that we have an integrated view into the customer.

New capabilities have obviously been required, especially in the area of professional services, but we’ve been able to leverage some of our key partnerships under our project management as we grow into this capability.

What competitive advantage does it give Sprint?

Sprint Nextel has been the market leader in business wireless ever since our merger in 2005. We also have a long heritage of leading with applications to help businesses capture the power of mobility. By some estimates we’ve had as much as 50% business applications market share in the U.S. These leadership positions have provided the natural foundation for moving from being a “product” provider to businesses to becoming a “trusted solutions partner.” Our leadership positions have been well established, but for another wireless carrier to displace us once we’ve established ourselves as core to how our customer does business is another matter altogether.

What has Sprint learnt from its partners or customers from SAWS?

When it comes to mobile solutions for enterprise, there’s no such thing as “simple,” “standard,” or “off the shelf.” Every company’s needs are unique and every environment has its own special implementation details.

What advice or lessons would you offer to other carriers?

Start with your strengths. For Sprint Nextel, our strengths lie in our business market leadership, our strong relationships with leading business applications providers, and our heritage of innovation and technology leadership. We then looked for opportunities to extend those leadership traits in ways that create new value for our customers and that strengthen our market position. Other carriers will start from a different place and therefore, likely will end in a different place.

_Many thanks to Russ for making the effort to share this with our readers. We’re working on getting some more case studies from operators opening up to partners, and we’ll be showcasing some at our next event, but if you know of examples we might have missed, please do contact us

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May 22, 2007

Telco 2.0 Methodology: Key Transformation Issues

In our introduction to the Telco 2.0 methodology we said the first step was to define the process. The process is about one thing — preparing your business for a Telco 2.0 (all-IP, modular, interoperable, layered) world. To do this we need to A-C-T, a “mash-up” of best practice in Strategic Planning, Product Innovation, and Change Management, created specifically for Telco 2.0:

  1. Appreciate more fully the fifteen Telco 2.0 Key Transformation Issues that need to be addressed to stimulate sustainable growth. (That’s the focus of this post and, in 150 pages of more depth, of our Telco 2.0 Market Study.)
  2. Clarify how to approach Business Model Innovation (our next blog post on methodology). Most business people have an intuitive understanding of business models, but a documented and telco-specific framework provides the essential structure for debate and business model redesign.
  3. Test the ideas in the market by focusing on a few key areas where new business models and customer propositions can be applied. Once you’ve learnt how to apply Telco 2.0 thinking you can then apply the lessons more broadly across the organisation.

The deep telco-centric insight is really in the tools that companies can use in defining Telco 2.0 strategy, rather than the process itself (which as noted is adapted from current corporate best practice). In this post we’ll drill down on the key transformation issues that need to be addressed. This situation analysis requires you to address six areas:

  • Market understanding (which our customers are generally already strong at, having plenty of feet on the telco street).
  • Structural change insight (where they’re weak, so they hire us).
  • Business model (a challenge for vendors and operators with a technology- or engineering-centric culture).
  • People and processes (an even greater challenge, with telco culture self-identified as a key issue in our surveys).
  • End-user products and services (an opportunity given the slow evolution of core voice and messaging products).
  • Technology and networks (no point defining things you can’t deliver).

The inter-relationship of these is shown below:

What we’ve done is put some of the key issues onto this framework. Your market situation may vary from this example developed for one global equipment vendor, in which case you’ll need to hire us too adapt it to your circumstances.

Click to open — Telco 2.0 business transformation issues.

High Level Telco IssuesCritical Telco 2.0 Issues (not sufficiently addressed today by the market)Description and examples of vendor response, capability required, or issue to address
Market ChangeReduce capex and opex through shared infrastructure and partnershipTower/right-of-way, RAN and core network sharing; elimination of “gold plating” telecoms solutions; streamlining or eliminating business processes; outsourcing. Enable peering of voice and data to reduce interconnect costs (e.g. all cablecos, loop unbundlers).
Solve Broadband Incentive ProblemSupporting different pricing mechanisms; Enable alternative means of packaging up devices, service and connectivity; provide finer-grained provisioning models; enable P2P and content delivery networks; move traffic off-net (media-based distribution, personal area networks, caches); diversify into other forms of communications (e.g. QR barcodes); help segment and target user base based on actual usage patterns.
Focus on Telco strengths vs. Internet portalsProvide integration of (third party) service with telco provisioning, payment, logistics, retail, support, CRM, biz intelligence, SDPs and networks.
Structural industry changeVertical to horizontal/modular structureOnly create technical vertical integration where necessary (rather than where possible); model benefits/costs of vertical integration; understand limits of Internet Protocol abstraction and help applications work around them; open APIs to all components allowing for more fluid combinations of services, devices and connectivity (and payments)
Consolidation of public sector purchasing; growth of muni/community networksMove past “divide and conquer” method of selling connectivity in small lots to individual users and businesses (starting with large-scale public sector demand aggregation); long-term contracts to supply basic local access.
Investor preference for low-volatility utility returnsFor example, (BT) Openreach’s re-rating as a utility has driven up BT’s stock price. Work with different kinds of investors on access infrastructure supply contracts; spread risk to more partners (e.g. property owners, local government, pension funds, entrepreneurs); emulate infrastructure capex models from outside telecom (eg. PFI, public transport); share infrastructure and consider open access models.
Business modelsNew revenue sourcesWho could pay - Users, Taxpayers, Employers, or Advertisers/Merchants? Broaden funding base for network and services. Enable advertising. Extend models from short code SMS, freephone and premium telephony to IP services.
Enable B2B payments and flowsWho could get paid - Content providers, application providers, device/OS makers, infrastructure services, connectivity providers? Enable flows between them (plus auditing, accounting, authentication, sign-up, reporting, etc.)
People and processesMarket-centric organisation structureDifferent products and messages for different Telco 2.0 strategies (Pipe, Platform, Protection). Operators need to restructure their organisations and product portfolios. Vendors need product pipeline and sales/marketing targeted to needs of horizontalised customers; different (aligned) messages for CMO, CIO and CTO communities.
Product and pipeline managementMetrics, data and tools to enable strategically-aligned product and project pipeline management (e.g. QFD, AHP/ANP and other decision science tools beyond ROI and BOGSAT). “Telco 1.0” solutions may still pass through for more traditional customers and markets, but the product portfolio should be managed and aligned with each operator’s strategic transformation goals. Vendors likewise need to manage strategic change by not channelling all investment into sustaining innovation for Telco 1.0 business models.
Cultural and change managementA major blocker for telcos, where this will be addressed as part of organisation redesign. Vendors can offer customer education; training; consulting; evangelism; process re-design; org re-design; industry thought leadership; investor education. All need to learn “Enterprise 2.0” agility — internal blogs, wikis, IM, tagging, search, open source tools, etc.
End-user products and servicesValue-added capability definition and developmentBig opportunity in core telecoms business (for existing players and those in adjacent markets). Vendors need to create a “2.0” voice and messaging services vision; enhanced presence, availability capabilities. Promote social networking and self-expression services vision which integrates legacy voice/messaging products into those for win-win between operators and portals.
Partnership and value network creationVendor and operators can offer partner networks of technology, distribution and value-added services. Goal is to lower their integration and business development costs; provide certification schemes and interoperability labs; developer and partner programmes.

As an industry, how are we currently scoring up on these issues? Here’s our first cut, based on our own assessment:

High Level IssuesIssues to addressRating (*=poor to *****=excellent)Notes
Market ChangeReduce capex and opex through shared infrastructure and partnership***Considerable progress in network sharing and unbundling, although plenty of wasteful capex and duplicative competing access infrastructure in areas that are probably natural monopolies.
Solve the Broadband Incentive Problem**A long way to go, with most effort being expended on short-term traffic shaping and pricing fixes that don’t offer long-term solutions.
Focus on Telco strengths vs. Internet portals**Few operators have managed to create a win-win with Internet partners that truly enagage the best of each others’ assets and keep telcos “in the loop”. Too much price competition, too little focus on quality and service.
Structural industry changeVertical to horizontal/modular structure**Some operators have undergone structural transformation, and have set their retail operations free. Virtually none, though, manage to operate outside of their own network footprint, or offer comprehensive platform APIs.
Consolidation of public sector purchasing; growth of \muni/community networks**Early days still for this one, but the constructive engagement of the public sector is only really advanced in a few northern European countries and a very select few US states and cities.
Investor preference for low-volatility utility returns*You can tell from all the IPTV projects that everyone still thinks that a single vertically integrated and high-risk content aggregation and distribution strategy is a good way to pay for a network. Likely to result in a lot of tears and executives being sent off to re-education camps by angry investors.
Business modelsNew revenue sources**Some early forays into payments (Japan - DoCoMo, Africa - M-Pesa), advertising (Europe - Blyk), social networking (USA - Helio), IT services (BT), but most still heavily dependent on traditional access and services revenues alone.
Enable B2B payments and flows*Very poor, given that billing and settlement are what telcos do.
People and processesMarket-centric organisation structure***Some serious efforts to restructure organisations and streamline processes. Still a long way to go in engineering cost out of the business, and too much effort expended on optimising business processes that could probably be automated or eliminated entirely. Much inspiration remains to be drawn from airlines, retailers, and other utilities.
Product and pipeline management*We’ve seen little if any evidence of operators or vendors having a serious go at formalising Telco 2.0-like criteria into their resource allocation process. We’re not talking PhD-level complexity here, just simple things like preferring features that deepen customer intimacy (automatically add directory inquiry lookups into your address book) over fancy new content and multimedia services.
Cultural and change management**A few are ahead of the pack, but most operators remain deeply conservative organisations struggling to deal with change at the delivery technology level, let alone for structural issues. Even leaders like BT took a near-death fright to make them take change seriously.
End-user products and servicesValue-added capability definition and development**Massive gap between what users want from their communications tools, and what Bell-style telephony and even SMS are delivering. Danger is that Internet players will fill in all the group, social, asynchronous, rich media communications, and seize much core revenue in the process.
Partnership and value network creation**Lots of “manual” partnerships with the biggest Internet search companies and portals, and a few examples (notably i-mode) of working to extend the partner relationships down towards the “long tail”. Most of the gatekeeping of bizdev remains to be eliminated, the sign-up of partners automated, and the fragmentation of wholesale access fixed.
Technology and NetworksDevelop platforms more tightly linked to specific content and services**Several operators have started to specialise in supporting certain classes of applications or content (e.g. Sprint SAWS for enterprise customers, multiple mobile TV initiatives for consumers). However, few have created a complete suite of identity management, provisioning, billing and support capabilities to rapidly and easily add in third party services or insert 3rd party capabilities into the service delivery value chain (e.g. content aggregation, recommendations, reputation, directories).
Develop simplified QoS, congestion management and partner APIs*A few operators such as BT have done extensive research on congestion pricing, but to date the wholesale market is stuck with a just two basic models: pipe capacity based on peak throughput (but unrelated to volume), and volume-based metered usage. Partner APIs and platforms are often highly complex (e.g. IMS, JAIN) compared to Web protocols (e.g. REST).

Do let us know your thoughts and feedback in the comments below.

We’ll take a look at the details of business model design next.

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Telco 2.0 October 2007 Event - Agenda

Here is a preview of the agenda for the next Telco 2.0 Industry Brainstorm, 16-18 October 2007, in London (near Tower Bridge). I’m delighted to announce that since the last event in March we’ve deepened our research and education partnership with the GSM Association and created a new partnership with the Broadband Stakeholder Group (an important UK policy support group with strong relationships with the European Commission and leading players in the European broadband value chain).

This chart shows the event agenda at a high level, and below it are some more details of the focus and format. The event site will be up soon (the March 2007 event site is here for those new to Telco 2.0).
Telco2BrainstormOct07AgendaSummaryFinal.png We’ve spent a lot of time processing the tremendous amount of feedback from participants at the last event. We think the October event will a.) push forward the debate in the key areas of the Telco-Media-Technology sector, and b.) help participants take home more practical ideas to improve what they’re currently doing. In summary, people told us this:

What You Liked

- The continued focus on the cutting-edge issues.
- The interactive format (‘Mindshare’).
- The openness in discussion.
- The careful preparation, briefing and facilitated process.

What You Want Improved

- More discussion time in groups to process the many ideas generated in the brainstorming.
- (Even) more effort in vetting and briefing the stimulus presenters in advance.
- More coverage from outside Europe.
- More coverage from outside telco.
- (Even) more effort in helping vendors avoid embarrassing themselves with inappropriate messages.
- A number of smaller requests (eg. free wifi available, etc).

What Topics You Want Covered in October

- Business Models (How to make money in new growth areas - mobile internet, advertising, TV, voice & messaging 2.0, alternative distribution systems)
- Inter-industry convergence
- Time-To-Market for Telco 2.0 propositions: How to collapse?
- ‘Innovation’ processes (more broadly)
- Enabling ‘Platform Strategies’ (partnerships, developer communities, MVNOs, leveraging telco tech assets)
- End-user experience/needs/value
- A number of specific technology issues.

What We’re Doing about This

We’ve taken on board all these comments and are working hard to address them. In particular, we are:

- Attracting a larger number of participants and speakers from other industries (Media, Retail, Consumer Electronics).
- Inviting more cutting-edge, disruptive players to stimuate the brainstorming: Joost, Akamai, Amazon, Babelgum, Tesco, Iliad.
- Creating a special ‘Innovation’ exhibition of the most disruptive new companies in comms and media. Bringing them together with VCs as well as operator representatives (more on this to come…).
- Focusing on stimulus presenters who will make an effort to prepare new material for the event (and who are strong at presenting it. We rated all the previous speakers: did they fulfill the brief, did they prepare something new, did they present in an engaging way? See here).
- Conducting new research into new practices from around the world.
- Conducting new research into trends in end-user spending patterns.
- Focusing the brainstorming in the End-User Summits (Digital Youth, Digital Home, Digital Town) around a set of new, pre-prepared end-user value propositions and, the practicalities of implement them.

As a result, the title of the event is ‘New Business Models for Telecoms & Media’. You’ll see from the slide above that it covers the big strategic issues (attracting Investment, The Broadband Incentive Problem, Portfolio Development, Change Management) as well new areas where we’ve recently completed major research exercises (Mobile and Online Advertising, and Comms Product Innovation) and End User Markets.

It’s a natural progression from the last two Telco 2.0 event, as hopefully you can see here:
Telco2BrainstormOct07.png Finally, a quick thought: since last October we’ve collected a whole database of nice quotes about the event series (how refreshingly different and relevant it is, etc), but I was taken by this one from a VP at a major European Telco who came to Telco 2.0 for the first time this March. It sums up what we’re trying to do, I think:

“When I got there I was unsure of the mix of people. Would it be mostly stiff telco execs who are blind to the innovation needed and shackled to the old business model (career guys) or would it be a seditious lot of frustrated disrupters, jumping up and down and crying wolf once again to the career guys. But it was neither. I actually met a group of smart people who are genuinely concerned and very interested in the future of a fantastic industry.”

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May 16, 2007

The Telco 2.0 methodology — Introduction

The journey from Telco 1.0 to Telco 2.0

We’ve been doing a lot of consulting work and proposals recently for large network equipment vendors, operators, industry associations as well as start-ups. We’ve got to the point where we’re seeing the “big picture” of what Telco 2.0 really means to them in terms of business problems to address, and a repeatable set of tools and approach to solve them. Indeed, we’re feeling pretentious enough to say that we’ve got a methodology coming together. (It’s telco, so it’s good to have an ‘ology.) The full details will be in the forthcoming second edition of our Telco 2.0 Market Study.

In case of business vertigo, lie down horizontally

On one hand there’s the vertically integrated Telco 1.0 (or even the analogue Telco 0.1) where you control everything: service, devices, retail, network, identity, partners, the lot. A world of “take what you’re given” for the customers. At the other end extreme is the future disaggregated Telco 2.0 — where users are the masters of every device, network and service - “take what you want”. There aren’t hard dividing walls between them: it’s a gradual journey with shades of grey.

For example, it was our pleasure on Monday to meet up again with Malcolm Matson and hear about the latest developments in OPLANs out in the Far East. (For more on OPLANs see our earlier blog post.) We think this is a strong “Telco 2.0” model, with separation of ownership of the access infrastructure from all services. So far, such an extremely horizontal model has only been applied to the most advanced of markets, such as Scandinavia. Anyone who tries to jump straight from 1.0 to 2.0 will find the rest of the ecosystem of services, distribution, payment, etc. unable to keep up. (Malcolm would no doubt argue that such purging of incumbent structures is needed, but we’re a bit too conservative to agree - it’s destructive destruction rather than creative.) Unbundling or municipal networks are part of that same journey separating networks, services and devices.

Core issue: Broadband Incentive Problem

In this process of horizontalisation or modularisation of the industry, one thing comes up over and over: the capex crunch caused by the broadband incentive problem.
We’ve written extensively about this before, so the quick version is:

  • User demand for network capacity is increasing fast, driven by content sharing and video downloads.
  • Willingness to pay isn’t — or, more accurately, there’s a wider dispersal of willingness to pay and usage making it hard to price network access.
  • The “free riders” are driving capex spend, or degrading the experience of other users at peak times.
  • Competition is flattening revenues.
  • There aren’t any simple pricing fixes. Efforts to sort different types of traffic or users tend to cause customer confusion (complex Ts&Cs), privacy issues (deep packet inspection) or anti-trust concerns (“network neutrality”).
  • There aren’t any simple technology fixes.

Picking up on this last one, Ericsson forecasts a ten-fold traffic increase over the next five years. You might think that throwing capacity at the problem is the whole answer. Unfortunately it doesn’t work. Clearly more capacity is wanted — it just has to be done on a rational economic basis. Ericsson’s own data shows streaming and downloands equalling voice traffic in this period. You’d be very brave to suggest that this traffic will generate the same revenue as voice. Throwing capacity at the system just increases the spread of traffic volumes and the free-rider problems of users sharing (often pirated) video content with no exposure to the real costs of their activities.

Ericsson isn’t alone in this approach of “solve your pricing problems with capex”. Comcast, a leading US cableco, has a quite progressive “Telco 2.0”-like streategy. Yet they are busy promoting their next-generation high-speed network. It’s great to demo downloading video with faster-than-real-time. Just as a hypothetical shareholder I’d like to know what that does to your cable TV business. If you’re going to offer this capacity, the business model needs to change. The fifteen-fold speed increase they boast of in a decade can’t match the fifty-fold increase in processor speed and the corresponding ability to source and consume those bits.

Different ways of packaging up the connectivity with the services and devices

This isn’t an isolated example. Take the current news stories about soldiers out in Iraq and Afghanistan and their Internet access. On one hand, the US military is saying that the media is the battlefront in 4th generation networked warfare and that they need to get their message out via YouTube. On the other, they’re banning soldiers from accessing these same services to upload experiences and download messages from home because the satellite networks are being swamped by short-form videos.

The solution to this is packaging. YouTube and the telco/cablecos need to be able to classify the traffic on the network, have wholesale relationships across many carriers so that there might be a raft of charging and priority models, enable more efficient delivery with content caches at the far side of the satellite link, and so on. The money and the bits have to flow together in different ways and speeds.

A roadmap from Telco 1.0 to Telco 2.0

So the challenge is to put together a framework for operators to understand:

  • Where are we now on the 1.0-2.0 scale?
  • What does the target state look like?
  • How do we go about the transition?

This means putting together two things:

  • A process for the above.
  • Tools to support the process.

In our next post, we’ll cover the process in more detail, and then move onto the tools.

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May 11, 2007

Telco 2.0 Event: Digital Home

Below is a summary of the output from the Digital Home brainstorm at March’s Telco 2.0 event. We’ll be pushing forward the debate over the next few months, in preparation for the follow-on brainstorm on 18th October in London.

We brainstormed against this in-going hypothesis, using the agenda described here, covering these issues:

- What customers want from the “Digital Home”
- Key Issues and Technologies
- Case Studies / New Concepts
- Sources of value for Telcos
- Conclusions and Next Steps

2.1 What do customers want from the Digital Home? Do we/they really know?

Jacques Recourdon, VP of Marketing Vision at France Telecom, Matteo Gatta, VP of Strategic Planning & Projects at Belgacom and Pierre Yves Le Berre, VP at Comverse spoke. Some of the most interesting take-aways were:

Jacques Recourdon - When asked how well telcos (including France Telecom/Orange) really understood their customers needs today in the Digital Home market, he gave a rating of 5/10. He is leading a programme to undertake much more sophisticated consumer research, building on his experience from the Consumer Packaged Goods industry. We’ll ask him to come back and tell us about it in October…

Matteo Gatta showed that the Digital Home is more than just broadband, broadcast and broad backsides on couches - security, privacy, other media management (eg photos), health, frailcare, education, teleworking etc are all part of the Digital Home “space”. He revealed results of recent Belgacom market research showing which were most interesting to householders. BelgacomTV is seen as the key ‘foot in the door’ of the digital home (see below for more discussion on TV).

Pierre-Yves Le Berre talked about the move to the networked, visual home and new modes of communications, entertainment and social interaction. He also talked about the “Digital Home on the Go” - the extension of the home while you are out and about, and the shift in consumer purchase, from “logical” to “intuitive” buying and investing in tools for self expression (being an ‘active player’ in something they want to be part of) rather than being a mere user. He made two very important points we need to bear in mind: 1.) Users need more control over the threat of intrusion to really trust these services, 2.) Users by and large like to own their services, not rent them.

Responding to this stimulus, delegates gave a good mix of feeback using the event’s collaborative technology. Here’s some of the most pertinent:

Do you honestly believe that Telcos can stretch their brand to the content space to be perceived by the consumer as a credible content competitor (outside of communications content)?

Can telcos really control the experience in a world where users already go online to experience offerings from WWW players? Why shouldn’t Orange just be an access-only company?

We need to get away from specific solutions like home energy management, and move towards creating an environment which facilitates the customer’s journey to discovering value.

2.2 Key issues and technologies - Collaboration and Open Source are key?

Fernando Calvo, who investigates Digital Home Services for Telefonica R&D, gave a super paper on the trends in technology maturity over the whole Digital Home space - hhis reference technical architecture stimulated much debate (we’ll be coming back to it in a future blog post). His main message was that a significant number of key technologies will be fully mature by 2008/9 - we must start working out how to use them now! A big thank you to Fernando for making a special effort to produce some unique material for us.

Gabriele Elia, Head of Broadcast Innovation at Telecom Italia, showed the problems and lessons learned from existing IPTV implementations, and the threat/opportunity from Web TV and P2P based approaches. He said the business model for IPTV, as it currently exists today, at least in Italy, was broken for a combination of end user, internal telco and technical reasons. He outlined some new business models for IPTV - among them the creation of a shared network platform for multiple IPTV service providers to deliver multiple services to multiple customer groups across multiple geographies.

Marty Algire, VP of Platform and Products at Radialpoint gave the first “disruptor” talk, discussing the opportunity for telcos to ‘neutralise’ the threat from the web portals and search companies (Google/Yahoo/MSN). He noted that the two pillars of the Telco 2.0 world, viz (i) Partnerships and 3rd party open plays, and (ii) Customer-centric multi-service provisioning, are in some ways mutually incompatible unless services are truly open systems. Otherwise, plugging in is hard to do. As he pointed out, there is no real “developer network” for Telco services, and it won’t appear without an open culture and, perhaps, open source at the application layer. Since the event, Marty’s done a great ‘guest post’ on this blog, here.

Some comments from delegates:

How long does it typically take to go from Proof of Concept to general available product in Telefonica? In my experience it takes 3 years minimum

The Telecom Italia IPTV shared Platform model seems similar to BT Wholesale vision, and rather different to BT Vision. Is this the future for telcos - work with competitors as well as compete with them?

Isn’t it easier for the content player to give the content to Joost, Babelgum for worldwide distribution.

In human history, advances in thinking are typically driven by reaction to challenge/threat (war for example) - should the telco industry rally round the ‘perception’ of threat (from Google, MS et al) in an effort to put aside internal industry differences to get our collective act together (before its too late) ?

2.3 Case Studies/New Concepts - Just get out and try!

Pearce Connolly, with perhaps the best job title in telco is “VP of Football” at Telenor. He talked about their use of the good old ‘Football TV Rights Gambit’, and the direct - and indirect benefits. A real “aha!” is that in an interactive world, the chatter about football is more important than the football itself in terms of customer loyalty. He also made a good point that Telcos shouldn’t analyse their way into new media, at some point they just have to go with their belief.

His belief was: “You change your car, you change your mobile, you might even change your wife, but you never change your football team!” Football allows Telenor to test, for the first time, this content across all channels - MobileTV, WebTV, PayTV, Online, Mobile. And in so doing, it enhances the telco’s brand image as something more ‘cool ‘n’ fun’.

Edward Roberts, a Director at Asset House talked about the importance of the metadata and the service data as part of the customer’s “digital product management”. We’d agree….it’s a subtle point, too often lost, but the data about the services is often more important than the service. You can ready more about what Edward’s doing to support BT Vision here.

Andy Tiller, VP of Marketing at ip.access, talked about Femtocells and the use of these very localised mobile cells as an alternative to WiFi. Interesting points are that about 30% of mobile calls are made from home, and about 35% of mobile TV is consumed in the home - mainly in the bedroom and lounge apparently! Andy explains more about the opportunities for mobile operators to encroach into the home market on our blog here.

A comments from delegates:

Great that Telenor have shown how to brand build and create community and communication with football. The Telco 2.0 question is how do you enable this for someone else - Coca Cola sponsoring music and creating a community around this, say?

2.4 Sources of Value for telcos in the ‘Digital Home’ - Business Models before Technology

Stuart Collingwood, VP Europe for SlingMedia showed how Slingbox, as a disruptive play, created value by “productising” a customer need to watch the TV they wanted, where they wanted it - elsewhere in the house, in another house, even another country. Should the telcos bother to innovate in the consumer electronics side of this market when entrepreneurs with plenty of VC money will beat them to it every time? SlingMedia is releasing a slew of other products that help make 3G more relevant (SlingProjector, SlingPlayer, SlingCatcher - look them up!), but their speed of service innovation is a marked contrast to that of the telcos. Is it even worth competing?

Sadly, Gerry O’Sullivan, Director of Products at BSkyB couldn’t make the event at the last minute. He was going to discuss how BSkyB sees the Digital Home from the point of view of satellite media and as an ISP broadband service, and how they are thinking of integrating these services. It would be have been interesting as Satellite is often forgotten as a key player in the Digital Home. Next time…

Our Analyst-in-Residence, Alan Patrick, an independent consultant with Broadsight and an associate of the Telco 2.0 team, stepped in to describe where value can be found, and who is looking for it.

He pointed out that it’s a fairly standard and predictable - and thus highly priced - strategic play to try and creep up and down the ‘Digital Home’ value chain and try to own more of it. However, the last 10 years has shown that playing in a small but useful emerging vertical segment - and doing it really well - can bring substantial value as well.

Relevant ‘emerging vertical segments’ could be found at the intersection of a.) different sectors - like ‘Security’, ‘Health’, ‘Home Automation’ - with b.) different functions - like Identity / Intimacy management, Security, Metadata/Search (eg Directories, EPG, stats), Social Networks, Interactivity, as well as Billing, OSS, and Provisioning - and c.) different service types - eg. Integration, tidying up some of the “digital mess”.

Tied to this is Alan’s other main point that the “Convergence” people talk about is not just technology, it’s also about business models. Media advertising-based models and dotcom “grow at all costs” are as valid in the Convergence as traditional Telco subscription based models. The key is, like SlingMedia, to be quick off the blocks. An opportunity (cf. Jacques Recourdon and Pearce Connolly) and, of course, a threat to telcos…


2.5 Conclusions

Considering all of the above and all the superb input and feedback from participants during the brainstorming (I’m afraid the full verbatim transcript of the brainstorming is availabe to participants only), there seemed to be 3 big narratives bubbling up:

1. The Digital Home is far, far bigger than just phones, IPTV and Home Entertainment, and connecting it all up creates far greater added value than just delivering TV and Telephony over new pipes. (A sub-trend is that part of the Digital Home is extensible and mobile).

2. The overall “system” has to be easy for the customer to use - easy to adopt, adapt and adjust. The current “digital mess” is a barrier, though the emerging maturity of a large number of core technologies presents a huge potential opportunity for Telcos, especially in their ability to provide platforms for themselves and others.

3. The Convergence is about business models as much as (if not more than) about technology and services - and this will be a challenge for Telcos that they must address. (Watch this space for more on this topic, but see here in meantime).

In addition, in the comments and discussions during the brainstorm another interesting narrative emerged: in this early stage of a new market, Innovation is key, and that means a.) the ability to solve point problems not entire systemic solutions, b.) to try small new services, c.) to move quickly, and d.) to have enough belief to be unafraid of playing in others’ turf - just as they are playing in Telco turf. As delegates said in the interactive debate:

“The telco industry needs to become MUCH less resistant to change - this is an industry that takes years to adopt new ideas. In the digital home environment (which is by definition a consumer environment) this will mean that telcos (and industry that supports it) will always be behind the curve. Sling is a classic example - this will mean telcos will miss the market more often than not.”

“Start looking at opportunities on extending our core capabilities (what can we bring to the content provider and other partners, rather than what they can bring to us).”

“Start letting exploratory projects run themselves rather than letting the voice business ‘elephant’ judge the new projects as ‘not moving the needle’. Perhaps we need 10 small projects rather than 1 big one.”

“Start realizing the value of customer data. It’s not all about vertically integrated VAS!”

“We should do more intelligent market research!!!! (intelligent = qualitative, non-traditional e.g. lead user workshop, empathic design, user clinics, information acceleration).”

The Telco 2.0 team will be exploring these issues more over the coming months, and will be running another industry brainstorm on this topic on 18th October in London at the next Telco 2.0 event.

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May 4, 2007

Restructuring to deliver Telco 2.0 services

We’re often asked What is “Telco 2.0”? In short it refers to a world, enabled by IP, which is highly modular and has a horizontal structure of hardware (networks and devices), connectivity and content/services. Users aren’t forced into a particular choice of one of these by their preference for another. So an operator offering a single own-brand IPTV service is following a traditional “Telco 1.0” approach of vertical integration; whereas one which creates an efficient content delivery network and opens up to partners (or at least co-opetition) is a Telco 2.0 approach. The products and technology may be similar, but the business models are different.

To deliver these services it should come as no surprise that the organisational structure needs to change. The old style of Telco was network-centric: a business unit for fixed, another for mobile, maybe another for international networks. Slowly that’s morphed into customer-centric: enterprise and consumer, making the hardware layer “horizontal” across the business. The network group then also has incentives to seek new wholesale customers so it’s not entirely dependent on one or two internal retail groups for its services.

Now we’re seeing the third phase of change, as the “horizontal” layers grow to encompass more of the operator’s functions. BT have announced that they are establishing two new divisions with a product innovation and delivery focus. Sprint did a very similar thing in my tenure with its Product Realization group, which combined both new product development and operations under one roof. It introduced process innovations such as monthly operations reviews attended by all product managers giving everyone a complete view of the business.

BT’s approach also seems to be a “Telco 2.0 compliant” approach, given some caveats. In BT’s case, they’re following the full set of Telco 2.0 strategies:

  • Diversifying into enterprise IT services.
  • Separating the network assets into Openreach (pipe).
  • Opening up the platform to wholesale partners.
  • Protecting and extending their traditional end-user retail product offerings.

That makes for a more complex organisational structure than many other (former) incumbent telcos.

What’s interesting is that they describe this new BT Design organisation as a software organisation which then runs on the BT hardware platform. There is a danger here in that you need to understand your comparative advantage against the Internet players: physical assets, brand, payment relationships, local partnerships and knowledge. Purely “virtual” solutions don’t do that.

Vodafone have tried and failed with a similar structure — if anyone has insight into what went wrong, the anonymous comments box is below!

We also like the BT Operate structure. It will clarify the real costs of building and running these services (since there’s an internal vendor-supplier relationship). It also exposes BT’s delivery units to comparison and competition from outside. Thomas Anglero has some fascinating figures on Amazon’s commodity grid computing services. I doubt many (any?) operators can match these. There’s a long history of failure of operators in the hosting business, and there’s little reason to think that anything has structurally changed to give them the scale and cost structure of Amazon or Google.

If you were a disruptive new entrant into telecom you’d not build a NOC, you’d just hire Amazon to do it all on a massive industrial scale. Or, maybe you’re at the other end of the scale and you’d like to start a phone company for $200. Either way, the internal supplier groups will have to justify themselves against the best of the best from outside. It’ll do them good.

The start of a process, not the end

There may be more re-structuring needed. For example, my efforts at getting Sprint to create an open API platform (five years too early, but at least we tried) foundered on the rock of organisational structure. As this business model process design diagram from Arvetica shows, if you’re going to open up to new business models, you can’t assume your existing delivery structures will work.

What we found at Sprint was an internecine struggle for control over the API platform between the dotcom, IT and network groups — with a confused marketing team (who just wanted to sell ringtones and voice minutes) caught in the middle. We skipped the whole organisational structure bit and went straight from portfolio creation to implementation. BT have gone way further in resolving this than anyone else, but similar battles may lie ahead.

Vendor impact — mirror your customers

We were doing a workshop on the Business Model Map this week for a large network equipment vendor, and it struck me how difficult it would be for them to sell “Telco 2.0 solutions” to operators. If you’re selling a mix of end-user product innovation, enabling open platforms and cost-reducing network equipment you’re targeting three different customers: the CMO, CIO and CTO. Furthermore, there may be tension between the needs of these. Opening up the platform to co-opetition is scary for the consumer retail group, but the raison d’etre of the wholesale team.

If you’re selling to BT, that’s fine because you can have three salesmen with different song sheets singing different tunes. For an operator who hasn’t restructured in to be more “horizontal”, you’d better stick with a Telco 1.0 selling approach, else you’d look crazy with three salesmen with different messages about the future.

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World-Class Stimulators Wanted…

The draft agenda for the 3rd Telco 2.0 Industry Brainstorm (16-19 October, London) will be released on the blog next week. We are currently collecting recommendations for world-class stimulus speakers. We will be covering the topics listed below. We will follow our normal ‘Mindshare’ interactive format (with significant enhancements based on feedback from the market), aiming to push forward the debates from the March event to the next stage. The overall theme will be: ‘Business Model Innovation in the Broadband Value Chain’.

1.) Plenary: Attracting Investment, Disrupting Old Models, Overcoming the ‘Broadband Incentive Problem’, Creating Sustainable Portfolio, Managing Change.
2.) Parallel Workstreams (End-User Markets):
- Digital Youth (trends, case studies, technology, sources of value)
- Digital Home (trends, case studies, technology, sources of value)
- Digital Cities (Access, Applications, Finance, Regulation)
3.) Special Depth Workshops:
- Telcos Role in the Advertising and Marketing Services Value Chain (creating a scaleable industry platform).
- Product Innovation 2.0 (Improving End-user Understanding and Reducing Time-To-Market)
- Technology: Leveraging Customer Data, Open APIs for SDPs.

(They’ll be a demo area for start-ups and new innovative solutions too.)

In the next 2 months we will be inviting senior speakers from across the Telco, Media, Technology (and other) sectors to stimulate the debates with specially prepared presentations.

The criteria for their selection: 1.) They have cutting-edge experience/expertise in ‘Telco 2.0’ concepts, 2.) they are prepared to create new content for the event, 3.) they are world-class presenters/panellists.

Note: We have a small number of places for vendors to formally speak, but we reserve the majority of those for our sponsor organisations (who’s speakers have to match the same criteria as the rest).

If you know someone who meets the criteria and would like to recommend them to us, please drop us an email at: contact@stlpartners.com. If they’re selected and agree to come, we’ll give you a 10% discount to the event.

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May 3, 2007

Death of the SIM card?

One of the topics which came up in the ‘Digital Worker’ stream at the recent Telco 2.0 event was the role of the mobile operator and their SIM card. We asked Colin Mallett, our ‘analyst-in-residence’ for that session, and who spent many years working in R&D for BT, to share his thoughts with us:

“10 years ago BT started looking at a new kind of player called the ‘SoftTelco’. Later, with a multi-million pound R&D budget, we tried to implement some of the ideas, eventually ending up in the Brightstar incubator. This included looking at MVNOs and how to by-pass the Mobile Operator’s SIM.

The GSM SIM card uses tamperproof silicon to provide the client for the mobile operator’s Home Subscriber Subsystem (HSS). It provides a strong authentication token which can be managed securely over the cellular channel. This is a powerful platform which binds the user subscription, handset and network together.

Unfortunately, as readers of this blog know all too well, this sort of tight commercial and technical integration is being ripped apart by IP. It’s happened in fixed telephony with VoIP and it’s soon going to come to mobile - by around 2010 or 2011 according to a recent Telco 2.0 survey - even if, in the short term, operators ban VoIP from their ‘unlimited’ data packages.

So, are SIMs really appropriate for supporting converged services, especially on laptops or on the new classes of Mobile Internet Devices?

SIM Is Good…

The beauty of SIM authentication is that you switch on and a few seconds later you have a connection - more or less anywhere in the world. The whole process is hidden from the end user and everyone takes it for granted. Only traffic over the cellular interface is encrypted, but that is optional for the local mobile operator. So, for end-to-end IP data traffic to remain fully secure, familiar techniques such as the Transport Layer Security protocol (TLS) are still needed. While automatic and secure WiFi authentication is more complicated, it can be achieved if an application is linked to a SIM card (and TLS or IPSec protocols are employed).

…But is Under Attack…

So if the SIM card is so effective, why is it threatened? Mobile operators don’t want to give up the tight control that SIM’s give them, especially in the face of a growing number of MVNOs in increasingly saturated markets. For the majority of operators, in voice and messaging in particular, their reaction to the developing Telco 2.0 trends is to defend against convergence rather than embracing it, which giving open access to WiFi via 3G and HSDPA implies.

…It Hasn’t Evolved…

Over the last 5 years, compared with on-line transactions, SIM based mobile-commerce has failed to take off, partly because the mobile operators and payment card issuers have not been able to agree on appropriate business models and partly because the payment companies have not been able to accept that their logo should not appear on the physical card.

As a result, multi-application SIM cards have never appeared and the SIM has been seen as a blocker to progress, stimulating multiple research projects to bypass it.

..But Other Technology Has…


For many years, handset manufacturers opposed the dual-slot phone - one for the SIM and one for the credit card. However, the battle is now lost. In the diagram above, the mobile handset looks remarkably like a computer with added Cellular and WiFi modules. A second slot was originally needed for removable media to store photographs or music. Now it can take a ‘secure’ MultiMedia Card (SMC) consisting of a flash memory device combined with Java Card™ smart card silicon.

This, of course, could include banking credentials with the SMC even bearing the financial card issuer’s logo. Although the SIM card is still required for access to mobile networks, the SMC can run all the added-value applications and the processor can run secure automatic WiFi authentication processes and banking applications using SSL.

So, in this scenario, the poor little SIM card supports its original function, but is surrounded by modules and connections that bypass it for everything except connection to a mobile network. The cellular data connection is merely one channel through which servers can be reached securely.

SIM cards are fighting back by adding large amounts of flash memory (512 Mbytes), a high-speed USB interface and a Web server. In all these scenarios, the card manufacturers will grow their businesses.

Gorillas Entering the Fray

Compounding the issues, Intel is working on an Identity-Capable Platform (ICP). The ICP will be a secure hardware area in a processor which supports future converged mobile wireless security and high-value, trusted services including secure access to any device, network or service.

For mobile handsets and possibly other devices such as home gateways, ARM has an equivalent technology called TrustZone. This provides a secure hardware execution zone and memory partitioning. Many silicon vendors are licencing TrustZone. These innovations make possible the advent of downloadable SIM-style applications that could replace the need for a physical SIM card.

What Does the Future Hold?

- The SIM: will co-exist with its cousin the ‘softSIM’. New items will appear, like the ‘secure’ MultiMedia Card (SMC).

- The SIM vendors should do well: They will broaden out and embrace convergence. They have huge experience in securely issuing and managing trusted silicon devices. There is no reason why they should not turn their attention to provisioning and OTA (Over-The-Air) management of secure solutions, such as credentials on ‘soft SIMs’ or trusted platforms like the Intel Identity-capable Platform.

- The SIM card: will continue to be made and used, but will become a low value commodity item, always competing against managed secure intelligence in the mobile device.

- The mobile operator: will no longer be ‘in control’. They must embrace convergence fast.

The SIM is a wonderful platform, why restrict it to mobile operators!”

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

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