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August 30, 2007

New Online Survey on ‘Future Broadband Business Models’ - now live!

If you’re a strategist in the Telecom-Media-Technology sector please help us predict the future by taking part in the latest Telco 2.0 online global survey on Future Broadband Business Models, HERE.

You’ll need to put aside 20-30 minutes and be prepared for some challenging and thought-provoking questions. In return for your considered input you’ll get a free summary of the results.

The survey closes on 17th September. The results will be publicly launched at the Telco 2.0 Executive Brainstorm in London on 17th October.

More background and details

Our Telco 2.0 hypotheses on future business models have grabbed the attention of many people in the TMT sector over the last 6 months or so. We’ve been running workshops and events with all kinds of players around the world to work out what it could mean in practice and what needs to be done to prepare.

Now it’s time to test these hypotheses more thoroughly, using the theory of the ‘wisdom of crowds’ — i.e. a mass online survey of practitioners from around the world.

It directly addresses the $1.6 trillion question: Where’s the money in fixed and mobile broadband in the future?

The survey will help identify how money might flow across broadband value chains in 5 and 10 years’ time, and how this might differ by region, and by fixed and mobile networks. We are looking to provide greater clarity about:

  • How the fixed and mobile broadband industry could be structured in the future?
  • What services will consumers value (and pay for) most?
  • What will service providers and their partners/suppliers need to do to deliver and extract value from users?

In the survey we use the term ‘Broadband Service Providers’ (BSPs), by which we mean: any fixed or mobile operator offering high speed packet data services, including Internet access.

The survey mainly comprises multiple choice questions, with some optional open text boxes. You can leave your browser open and come back to it throughout the day if you wish.

There are eight short sections:

  • Introduction & Hypothesis
  • Your Areas of Expertise
  • Prospects for existing ‘Broadband Service Provider’ business model
  • Future of Voice
  • Future of Video
  • Future distribution models
  • Future business models
  • Winners and losers

The survey is supported by the GSMA, Broadband Stakeholder Group, Alcatel-Lucent, TelecomTV, and BT who are promoting this survey to their contacts in parallel to our direct efforts. A big thank you to them.

You can start the survey from here.

Background to the survey

Here’s a summary of the in-going hypothesis for those new to Telco 2.0:

Offering just voice, messaging, content, video entertainment and Internet access is not enough for sustainable growth in an IP-based world. In future there will be a wide range of new business and payment models which will assemble devices, applications, content and connectivity in new technical and economic ways. The wholesale markets will evolve greatly to support this.

Just as many distribution systems compete to deliver physical goods to consumers, the same will increasingly be true for online information goods.

A distribution system is the combination of a transport system (e.g. video-on-demand server, or a cellular radio network) as well as a payment system (e.g. IPTV conditional access and billing). Different systems tend to be good at delivering different types of content, be it valuable, time-critical, or bulky.

We believe there will be a fragmentation of the distribution systems for information goods over the next decade. This will have significant impact on business models for all Telco, Media and Technology players. The survey is intended to test these forecasts against the views of practitioners around the world.

You can read more about the thinking behind this research project here.

And, the link to the survey, one last time for those who are too busy to scroll up, is here.

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Rebuilding the “mobile Internet” business around ‘Identity’

I was having a Groundhog Day moment yesterday as an executive from a fixed operator was telling us how urgent is was for telcos to find new ways to create and capture value as an adjunct or alternative to offering “dumb pipe ” connectivity. Just a few weeks earlier we played out the same “hunt the value” game with a client around the “mobile Internet”. The winner is the one who finds the most latent assets that can be woven in with new capabilities, partners and channels to create new profit centres.

The mobile Internet has only really created significant returns to operators in markets where fixed Internet access is weak or absent, or where you have a large, homogenous, rich technophile audience. Oh, or where you can use the Internet to bypass operator voice and messaging charges, as has happened in South Africa with MXit.

So, if you’re head of “data services” at an operator, what’s on your to do list?

Trifurcating the business model

“Mobile Internet” is really about three different business models:

  1. Evolving the business model for data in mature markets for mobile services (other than voice and SMS — see below). This is done by moving from a product-centric to a platform-centric (and sometimes pipe-centric) worldview.
  2. Extending the initial (vertically integrated, controlled, walled-in) business model to new emerging markets — taking Internet access to new people and places, but packaging it in accessible ways.
  3. Identifying opportunities and challenges to the core voice and SMS businesses, which needs to be considered independently of the browser/Flash/Java “mobile Internet” world.

Let’s just consider the first of these. And rather than start from the position of “hey, we’ve got a lot of underused 3G spectrum, and depreciating network kit, how do we flog it cheaply?”, let’s for once start with the person who really matters: the user.

Small buttons, small screen, big problem

The bottleneck in today’s mobile internet is usability — as opposed to the other parts of the value chain such as discovery (portals), payments, provisioning, technology, support, etc. Unless the bottleneck is addressed, effort in other areas is likely to be wasted.

The tactile UI of devices is naturally an area of change and innovation (think: iPhone), and the software UI (browsers, Flash, etc.) remain in a state of technical flux. That’s not the place to focus one’s effort if you’re an operator. Nokia, Apple and Adobe will always run rings round you. The presentation layer part of the interaction usability puzzle will have to work itself out in the marketplace. Definitely no “Web 2.0” initiative for most operators!

However, there are two other coupled areas that are more amenable to collective action and solutions. These are user data and privacy/permissions to access that data. The common theme is “identity”, which has been a great operator strength in the vertically integrated world. You don’t need a new phone number each time you add a new service (SMS, MMS, Push-to-talk, etc.) You also don’t need to send in a notarised copy of your passport and electricity bill either, just in case you abuse the service and someone wants to punish you: the operator knows enough about each user to make most people think twice before placing a prank or abusive call.

Connecting many users to many services = opportunity for intermediaries

This platform will need to enable not just purely mobile applications, but also help users take their PC experience with them — “Internet to go”. What operators need to do is expose good old-fashioned AAA functions outside the enterprise firewall and integrate them with third parties in a common manner. Very few operators have the scale for unilateral action.

Perhaps it’s as simple as agreeing that OpenID (or some other technology — I don’t care which) is the preferred means of extending carrier identity and authentication. OpenID is a very “Telco 2.0” type technology, as it decouples identity from services, and puts control of identity in the user’s hands. The inaccurately summarised nutshell version of OpenID is this: you use a special URL as your user ID (e.g. “http://www.a-telco.com/MYPHONENUMBER”) at any OpenID-enabled web site (there are quite a lot). The user then gets re-directed to that URL to authenticate themselves. The website trusts the authentication by a third party because of some crytographic magic in the background.

What does this mean in practice?

You could be the trusted identity provider to the user. Every web site and interaction, online and offline, could be anchored off their personal (i.e. mobile) identity. You could be presenting your logo, brand, promotional message at every authentication point. You are the VISA and the Verisign joining the experience together with a fabric of trust.

But only if the user decides it’s easy and beneficial. And the place to start is to make the identity experience of the mobile Internet work.

Technically, it’s really simple. One easy API. Since not all operators will move at the same speed, they also need to have a common web services directory or discovery mechanism where application providers can discover what identity services each carrier offers.

As a business innovation, it’s a big jump.

Connectivity is cheap, identity is not

The existing vertical products like SMS and telephony have some very subtle protections on identity, privacy and permissions. For example, why does nobody call an 0800 freephone number all day and night as a prank and run up huge bills for you? Because it means their phone won’t ring if there are any inbound calls, since it’s tied up. That’s a by-product of circuit voice, which looks like a restriction, but turns out to be a feature.

As connectivity becomes ever cheaper, the value is going to come from elsewhere.

If operators don’t seize the identity issue and make it theirs, the users will ultimately gravitate towards platforms like Google’s — even if these are deficient in many other areas where operators have competitive advantage. You will own neither the service nor the anchoring identity and user data. All further upstream opportunities, such as advertising, are then potentially lost.

The profit from “mobile data” will come from the origination and organisation of data, not its carriage.

The next step after identity in solving usability is context, such as location, “in a call”, “in a meeting”, etc. — but you have to solve the identity problem first.

Take the pain out of payments

The last area of relieving usability concerns is payment. The obvious success is premium SMS, and the obvious failure is entering your credit card details on a mobile. Today, I might have various payment instruments registered with my operator (credit card, bank account #, Paypal ID). It’s hard or impossible for partners to interact with that data, with the carrier as interlocutor, without going indirectly via premium rate SMS or voice. This direct interaction has been the holy grail of m-commerce for some time, and it will be harder to solve than the identity part because of the additional business processes, security, regulation and market inertia.

Solving identity will help solve payments.

Many pieces of the puzzle all need to come together

To make “mobile Internet” work, operators need to help solve a raft of interlinked problems:

  • Easier to use applications (usability via identity, context)
  • More applications (APIs)
  • Better and more useful applications (PC “to go”, extending existing activities)
  • More economic applications (wholesale markets for access, as opposed to metered data ISP plans)
  • Greater mass market reach of applications (work to extend voice and SMS ecosystems)

Success in these will come from focusing on the user’s problems, not those of the operator; focus on usability as the user’s key concern; and within that focus on identity as a common enabler.

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August 29, 2007

What Media Buyers Want from Telcos: New Research Programme

The 2nd edition of our report on the opportunity for operators in the media and advertising space, Telco’s Role in the Advertising Value Chain, seems to be going down well. We have been inundated with requests for the executive summary and several orders following an interview we did with Jim Cook of the excellent MobiAd News Portal. If you haven’t seen the executive summary of the report and want to, then email us for a copy.

Building on this and in preparation for the Telco 2.0/GSMA ‘Digital Advertising & Marketing Summit’ in October we have recently started discussions with several members of the Mobile Marketing Association’s (MMA) UK Board who have expressed a great deal of interest in a new piece of research which we are planning. For those who aren’t familiar with the MMA, it is an industry forum designed to promote the development of the mobile marketing channel. Where the GSM Association has an operator-centric focus, the MMA has strong representation amongst agencies, advertisers and media buyers: the future customers of a Telco advertising channel.

We spoke to Tony Riley (Mobile Enterprise), Maureen Scott (Openwave), Mark Palmer (Maverick Planet) and Jonathan Bass (Incentivated) about the need for operators and vendors/enablers to better understand the requirements of media buyers so that they can develop appropriate solutions and, where appropriate, work together on relevant industry-wide initiatives.

They all felt that this information would be hugely valuable as the danger at the moment is that the very customers that operators and vendors would like to serve are not able to contribute effectively to the discussions and activities currently taking place. This reinforces the discussions we’ve been having with our brainstorm stimulus speakers from Vodafone et al. So, this is what we plan to do to rectifiy this:

Research Programme Objectives
To build a clear understanding of the requirements of Media Buyers and Advertisers from the Fixed and Mobile channels and so enable managers in operators and vendor companies to:

  • Build appropriate strategies and solutions
  • Work together more effectively on industry-wide initiatives

Specifically, the research would aim to answer the following questions:

  • How might media buyers plan (integrated marketing) campaigns in future?
    • How might advertising being bought differently?
    • What fixed and mobile telco inventory will be most popular?
    • What is likely to be most important to media buyers - branding or direct response?
    • What interfaces do media buyers need from operators and other providers of advertising platforms/media?
    • What silos within media buying organisations need to be dismantled to supported integrated marketing programmes?
  • Which would media buyers prefer: a common industry-wide platform vs multiple platforms but with a common, standardised interface?
  • What customer profiling data would media buyers like from fixed and mobile channels? What is the relative important of:
    • Demographic data?
    • Contextual data?
    • Behavioural data?
  • How should this customer information be presented to media buyers?
  • Which metrics are most important to media buyers and marketers?
    • How should performance metrics be presented to media buyers?
  • What other roles should the operator and/or vendor partners perform for media buyers?
    • How can the mobile (and fixed) channel contribute to integrated (cross-platform) campaigns?
    • How can operators help with response to advertising?
  • What do operators and vendors need to provide now to accelerate growth in this market?

We propose that this would be a multi-region study looking at media buyers’ needs and attitudes across core mature markets:

  1. Western Europe (with differences explored between UK, France, Germany, Spain and Italy)
  2. North America
  3. Asia Pacific

We aim to collect responses from around 500-800 media buyers to enable us to conduct the necessary regional cuts.

Process and Methodology

  • Form a syndicate of 8-10 research sponsors from operators and vendors. Sponsors would receive:
    • Co-branding rights on the report
    • Input to the design of the survey so that key questions they need answering are included
    • Global licence for the STL Partners report
    • Up to 3 bespoke analysis cuts from the raw data in addition to those we will do for the report

This syndicated approach keeps the costs down for everyone, raises sponsors’ profiles in this space and ensure we get a wider input and a better result.

  • Develop web survey questionnaire in conjunction with sponsors and through qualitative interviews with media buyers
  • Test questionnaire
  • Distribute questionnaire to media buyer contacts in each region
  • Collect and analyse data
  • Produce report answering questions above and showing regional/country variations
  • Conduct bespoke analysis for sponsor companies


  • Agree sponsors and questionnaire - end October
  • Collect responses - end November/mid-December
  • Write report - end January
  • Bespoke analysis - from end January

The brainstorm on the 16th October, which will review the white paper outputs from the MMA/GSMA on inventory standards and metrics, will help specify this research in more detail.

Please do get in touch with us through the blog or directly via email if you have any:

  • Questions
  • Comments
  • Would like to discuss participation as either a sponsor or a media buyer organisation
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August 28, 2007

Music as DSL Subsidy, and Cuffware

French ADSL operator Neuf Cegetel has turned platform, recruiting Universal Media as a partner in its new music service.

For €4.99 a month over and above their usual €29.90 triple-play tariff, you can download as many songs as you want from the entirety of Universal’s back catalogue. A less extensive service is free. It’s clear what Neuf Cegetel is up to, right? Facing the usual DSL operator’s struggle to survive incumbent competiton, they’re adding new revenue-generating services that cross-subsidise the ISP operation. And, as usual, one of the simplest ways to do this is through platforms and partners.

One wonders how, exactly, Cegetel will deliver the music; after all, they do have a reserved path into your home for their cable TV service, which sounds like a cunning way to handle it with guaranteed QoS. But there are some reasons to suspect that they may not succeed. For a start, all the music is subject to digital rights management, and users must log in once a month; or lose all the music they downloaded. Equally, should they ever churn elsewhere, all the music vanishes. Well, you can see their rationale; it is, after all, a cross-subsidy to the ISP operation, and Universal Music will probably have demanded DRM as a condition of their participation.

But there’s no way this will be popular. Especially not as it’s only open to Microsoft Windows users. And the timing is curious; this comes just as EMI has started offering DRM-free downloads as a premium service. They claim that they’re a big hit; so much so, that another company is experimenting. Its name? Universal Music.

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August 27, 2007

Ring! Ring! Monday News Analysis: 27th August

These weekly news roundups are a new Telco 2.0 service; they focus attention on news items that might not be Telco 2.0-related at first sight, or big enough to warrant a whole post to themselves, but do contain important developments. They are grouped under the same categories as the rest of the Telco 2.0 blog.

Digital Politics and Regulation

Rene Obermann, CEO of Deutsche Telekom, wants to keep some monopolist privileges; and who can blame him?

Telco 2.0 Comment: It’s curious how some of the regulations introduced to create competition in the telco market are actually profoundly anti-competitive. Network-sharing, for example, was discouraged in order to create competing physical networks. Now, of course, it’s becoming ever clearer that competition is horizontal; and requiring duplication is really a way of protecting big telcos by increasing the barriers to entry.

Viviane Reding is reportedly plotting a new, broader European regulator on the model of Ofcom.

Telco 2.0 Comment: As the competition spreads horizontally, so does the regulator.

700MHz auction set for the 18th of January.

Telco 2.0 Comment: It’s gradually coming closer; soon we’ll see the colour of Google’s money. Speaking of money, the FCC seems very keen to insist on big reserve prices, a total of $10bn. As usual, the notion of free spectrum is a long way away.

Digital Product Innovation

Microsoft Windows Live apps on your Nokia N-series phone.

Telco 2.0 Comment: It may “only” be Live Messenger, Hotmail, Contacts and Spaces, but please note that these are all communications applications. And the carriers? They’ve been disintermediated.

New MVNO offers cheap roaming rates…with an interesting twist.

Telco 2.0 Comment: Now this is interesting; we wonder what the “network” they claim to own is. Clearly they haven’t got spectrum rights in 110 countries, nor have they bought enough base stations to cover the world. Perhaps this is one of the first rogue core networks?

Damned cool idea from Hewlett-Packard: the printer that is everywhere.

Telco 2.0 Comment: Here’s a cracking idea; rather than print documents and take them with you, why not print-to-file on one of HP’s servers, which gives you an SMS shortcode in return? When you need the document, you send them the code as an SMS, and they either send you a PDF file, or route it to a publicly-available printer of your choice. There’s a Google Maps mashup to help you find them. HP is bringing in chains of copy shops as commercial partners, Google as map provider, and acting as a platform itself; so where are the telcos?

Digital Worker

Unified Communications vs End Users

Telco 2.0 Comment: Is the vision of unified enterprise communications, so dear to companies like Cisco, opposed to end-users’ freedom to organise their own communications and communities? Skype, and the Asterisk folk, seem to think so.

Digital Youth

Security expert: beware security threat. According to F-Secure there are now some 400 items of mobile malware in the wild.

Telco 2.0 Comment: It’s not malware, it’s unauthorised innovation!

Online gaming shoots past social networks

Telco 2.0 Comment: We’re talking low-investment casual games here; but even if the margins are tiny, the growth rates here show that there is real potential in this sector. Clearly, it addresses some human motivation.

Broadband Connectivity

Indonesia ; mobile network number 10 launches

Telco 2.0 Comment: No-one should need telling that the emerging markets can’t get enough telco, but this is extreme. 10 mobile operators? It’s also interesting that the new entrant, Smart, is a greenfield CDMA operator. Far from common..

Hutchison 3UK loses slightly less money.

Telco 2.0 Comment: Perhaps their new role, competing with T-Mobile as the geek’s mobile operator and throwing out partnerships with MSN, Yahoo!, Slingbox, and Skype, is beginning to help? You’d do well to remain sceptical, though. It’s not as if 3 hasn’t spent enough money being cool.

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August 21, 2007

Variable Speed Limits for the Internet

A key feature of Telco 2.0 analysis is our effort to understand the limits of the end-to-end principle; how stupid can a stupid network be without being, well, stupid? Networks have to be intelligent in some ways; routing, for example, requires a lot of intelligence although restricted quite tightly to one task.

So we were very interested by a recent NANOG thread regarding improvements in how the Internet deals with major congestion on backbone links. Famously, the Internet is meant to route around damage, but this only works when there is enough route diversity to absorb the diverted traffic. In a major outage, for example the one that followed an earthquake in the Luzon Strait earlier this year, the problem is often that too many people are trying to fit through the remaining links at once.

This is where the fundamental principles of internetworking bite you in the behind; most Internet protocols work on the principle that, if one attempt to do something fails, you try again. TCP achieves reliable delivery by resending packets that are not acknowledged within their time-to-live, until a timeout. The problem is that if there is a major problem, very large numbers of users’ applications will all try to resend; generating a packet storm and creating even more congestion.

So wouldn’t it be nice if you could tell everyone to slow down?


This was roughly what the NANOG community was discussing. An “Internet busy signal” could be used by applications as a signal to slow down; restrict the creation of new TCP sessions, or the bandwidth of media applications. Propagating it across the Net could mean that rerouting would happen faster, and further away from the problem, thus improving the efficiency of the routing system. It would be a little like the variable speed limit the UK Department for Transport introduced on heavily used stretches of motorway; there, the speed limit is reduced some distance away from a problem in order to limit the rate at which cars reach the bottleneck to the maximum flow remaining.

However, there are some important differences; you can rely on the variable speed limit signs, because nobody is going around putting up their own unauthorised ones to slow down traffic in front of their billboards. And there’s an enforcement mechanism; the police can fine you for breaking the limit.

On the Internet, though, any network could send the slow down signal to any party connected to it; and it would give a great deal of power to them. Hackers could release a flood of slow down packets with forged source addresses into a major Internet exchange point, causing a massive denial-of-service attack. A pre-requisite of any such system would be the full, worldwide adoption of BCP38, which foresees that all networks filter all incoming and outgoing traffic to verify its source. There are also serious issues of Internet freedom; a network acting in bad faith could introduce the messages to its system, pretending that they came from the source of content it wanted to suppress for commercial or political reasons.

This is only part of the problem. More seriously, if the “Slow Down” message was widely respected, Internet perfomance would be significantly better during disruptions. Therefore, someone who didn’t respect the message might be able to get significantly better throughput than someone who did entirely because of the responsible citizens’ sacrifice. Indeed, cheating would be a rational act for the individual, but an irrational one for the community; the classic tragedy of the commons. The more cheats, the less useful it would be to respect the message. Therefore, eventually the scheme would break down completely, and quicker if it was abused in the manner described above.

The good news is that cheats would be easily identifiable; the user sprouting 17 TCP connections and a gaggle of p2p streams whilst everyone else is maintaining a steady 30mph stands out to ISP-level network monitoring tools. Therefore, this abuse of privileges could be made chargeable - or alternatively, those users who behave themselves could be offered a rebate from their bill, conditional on their good behaviour. So, we can derive some rules for a successful scheme:

1. Don’t be evil (now who said that?)

Only ever use it for its real purpose; user trust would collapse otherwise.

2. Vertrauen gut, Kontrolle besser

The German proverb means that trust is good, but it’s better to check. All slowdown messages must be source-filtered.

3. Build good practice in

In developing the system, we should design evil uses out; for example, use a metric such as a maximum number of sessions per user, rather than traffic classification (which the cheats will evade anyway, for example by encrypting everything and working over port 443 with the HTTPS traffic)

4. Incentives matter

Irresponsibility should have a price; apply a tax.

And you don’t need an IMS for that!

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August 20, 2007

Ring! Ring! Monday News: 20th August, 2007

These weekly news roundups are a new Telco 2.0 service; they are meant to focus attention on news items that might not be Telco 2.0-related at first sight, or big enough to warrant a whole post to themselves, but do contain real insight. They are grouped under the categories used in the rest of Telco 2.0.

Digital Youth

When Search Attacks: Participants in a fancy ID-business social network were horrified when a bot used to auto-populate their profiles libelled leading sci-fi author John Scalzi. He’d repeatedly written about disgraced congressman Mark Foley and used the word “paedophile”; guess what the bot decided to put in his “description” field?

Telco 2.0 Comment: Remember, automatic robots and highly personal information are a dangerous mix. If the AOL security breach was farce, this is tragedy, especially as Spock includes a function for users to vote on each other’s reputations.

T-Mobile Tees Up 3G: First 3G device for T-Mobile USA leaked…but the real news is that even without UMTS, data usage ex-SMS is booming.

Telco 2.0 Comment: T-Mobile is better known for its open-slather Web’n’Walk tariff in Europe, but how to explain its US data boom? Our theory is that its historic price leadership, going back to the days of Voicestream, captured a demographic that’s now adopting new gadgets and services rapidly. Note that AT&T just got FCC approval for the US’s first HSUPA data card - 2Mbits/s uplink, 7.2 down.

Digital Cities

Wi-Fi…Why? Cali-utopian geeks’ dream of free Wi-Fi everywhere doesn’t work. Maybe they could have a crack at the space elevator instead?

Telco 2.0 Comment: There’s a reason why mobile operators have lots of radio engineers, you know. And billing departments.

Paranoia in the palm of your hand: New Sprint service lets you browse sex offenders’ register from your phone; so you can find a sex offender in a hurry? No, of course, it’s for your peace of mind..

Telco 2.0 Comment: “Checking for local offenders is free…after normal data charges” It’s one way to get those metered bits moving. In Telco 2.0 terms, this is somewhere between Digital Home and Digital Town. Notably, some other carriers offer various security-related services; MTN in South Africa streams your home CCTV camera feeds to your 3G device and texts you if the alarm goes off. At least you can do something about that other than “move house” or “collect angry mob”.

Digital Politics and Regulation

AT&T spotted wielding censor’s scissors! Astonishingly, David “Stupid Network” Isenberg isn’t at all pleased that AT&T’s web music portal censored Pearl Jam being rude about President Bush. Perhaps it says more about AT&T that they’re hoping to make a profit streaming Pearl Jam over the web? Isenberg, again unsurprisingly, thinks this is an argument for network neutrality.

Telco 2.0 Comment: So that’s what they wanted all that IMS gear for! More seriously, as John Waclawsky said, monitoring is the first step to control.

ESPN’s efforts to have fewer customers are a roaring success; the cable-TV sports channel may give up on a scheme to restrict access to its website to customers of ISPs who pay it for the privilege.

Telco 2.0 Comment: The idea was that viewers who couldn’t get to see the videos would complain to their ISP; it could have perhaps been predicted that they would complain to ESPN’s website about not being able to see content on their website. Further, the economics of this are a little strange; there is no pot of gold in the customer ISP world for content providers to get their hands on, quite the opposite with margins tanking all over the world.

Too many zeros; Telekom Malaysia bills subscriber 17 times the GDP of the United States. Sorry, that should be “bills deceased ex-subscriber”…

Telco 2.0 Comment: When you do something often enough, even 99.999% sometimes isn’t enough.

Digital Product Innovation

3UK to offer cheap mobile data; 1GB/month=£10, 7GB/month=£25.

Telco 2.0 Comment: In the future, data transfer will be cheap. Cheaper and cheaper. How will 3 make money from this?

Nokia does identity and social networking: sadly, they call it Mosh. In other awful branding news, will Sprint-Nextel call its WiMAX service XOHM?

Telco 2.0 Comment: I, ah, hope you know what you’re doing with that ad budget.. Seriously, there’s so much interest in SNS these days it’s no surprise Nokia is interested, if only as a research project into user interfaces. It probably helps if your users can pronounce the service..Oh God, they’re actually going to do it…

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August 17, 2007

404 Skype Not Found

Centralised architectures can always cause trouble. Not that this is a point in distributed systems’ favour, necessarily; look what just happened to Skype, which has suffered a whole day’s outage.

We at Telco 2.0, as you may know, are actually a group intellect, structured rather like the brain of a large cephalopod. Rather than one single brain, there is a node for each tentacle, the whole being interconnected by the highest-bandwidth nerve fibres known in nature. Unlike the squid, the Telco 2.0 team uses Skype quite heavily in order to maintain coherence among its multiple cerebellums (cerebella?), so we may be forgiven for feeling a little sporky. We’ve been debased to using Google Talk for much of the day.

Telco 2.0 in its natural habitat
Telco 2.0 in its natural habitat

So all day, access to Skype has been to all intents and purposes impossible, starting around 1000 hours GMT. The pathology takes the following form; on start-up, the Skype client successfully registers on the network (often with considerable delay), but rapidly logs-off again, and struggles to reconnect. During the brief intervals of successful operation, the number of logged-in users is very low; between 100,000 and 320,000 according to our own observations.

What was up? Surely the nature of a peer-to-peer network means that there is no single point of failure? Well, everyone speculated, so why not us too?

Skype’s architecture is supposed to eliminate single points of failure

Skype is one of the most decentralised of decentralised systems. Much is secret about its workings, but it is well-known that some fraction of end-users act as “supernodes”, which all carry part of a distributed directory of Skype names and their current IP addresses. These also act as proxies for users behind firewalls who can’t connect directly. The problem of finding a supernode out there is solved by hard-coding the IP addresses of seven “super-supernodes” into the Skype client. As all supernodes know the locations of all other supernodes, once the client has contacted one of the seven, it can be handed off to a topologically handy node.

Skype user names are issued by a central server. This generates various cryptographic keys used to authenticate users to each other and to supernodes, as well as to encrypt bearer traffic. Everything is always encrypted. When a Skype client starts up, it tries to contact a super-supernode and presents its credentials. What happens then is not entirely clear; it is suggested that the supernode then carries out some sort of logon process with a central server. As the login details go first to the supernode, and this has the crypto necessary to authenticate the user, one wonders why this would be so.

So what have we learned?

Don’t be religious about any particular technology sounds good. IMS may be horribly over-centralised, but Skype may just have some similar pathologies. And the king of centralised telco engineering — the PSTN — is still the world standard for reliability. As long as you solve the user’s problem, nobody will care what technology you use. Until it breaks…

Update: As many people suspected at the time, it was the Windows patch whatdunnit.

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August 15, 2007

Telco 2.0 on TV: Disruption & Innovation in Voice & Messaging

We are delighted to have teamed up with Telecom TV who will provide television coverage of our forthcoming Telco 2.0 brainstorm (October 16-18th).

By way of background, we have just completed the first of three pre-event TV panel discussions. This one covered disruption in the core telecoms business of voice & messaging. Our Chief Analyst, Martin Geddes, was joined by Keith Wallington, Director of International Operations at Truphone, and Dr Norman Lewis, CTO of Wireless Grids to explore the threats and opportunities in this space.

You can also view the discussion on Telecom TV here.

The discussion is a prelude to the lively debate we anticipate at the Product Innovation Summit where we are focusing on Voice and Messaging. The three panelists provide great insight into current and future developments in this space, building on the analysis of this blog and linking to that in our forthcoming Telco 2.0 strategy report, Voice & Messaging 2.0. There is also a classic comedy moment about half way through when Norman is asked about his former role at Orange as a ‘Futurologist’ - I challenge you not to laugh!

There are two more pre-event panel discussions to come:

Stay Tooned!

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IT Giants: Commoditise This!

Not so long ago, Indian IT services company Wipro joined the IMS Forum and announced that from now on, it would offer a range of IMS development services. There’s a whitepaper of theirs here on IMS, but this paragraph from the EE Times story interested us more..
With the evolution of the IMS technology, Wipro has matured its IMS offerings towards becoming an integral part of the converged digital media delivery ecosystem,” said Nagamani Murthy, Wipro VP, mobile and consumer electronics group.
Clearly, Wipro sees IMS as just another data transport system; “he’s not the messiah, he’s a very naughty means of transporting information goods.” Of course, as far as developing applications for IMS client devices goes, this is precisely what IMS was meant to do (at least, one of the vast number of things it was meant to do) - open up applications development to a bigger community outside telco R&D groups. Traditional telcos might even be cheered by this as evidence that rather than letting just anyone develop applications, they are being developed by big companies on contract to other big companies.

But who would imagine it would stop there? At Wipro, they have a constant risk of a namespace collision with another IMS; Infrastructure Management Services. This is the line of business where they install, commission, and manage private networks, including (according to their website) high-capacity switching systems. And IMS is nothing if it’s not a high-capacity switching system. OK, so network outsourcing is not that new an idea, but the shift to IP-based networks means there’s something much more disruptive out there..

scientists prepare to experiment on a helpless telco

Scientists prepare to experiment on a helpless telco

What about rogue core networks? If you can send and receive IP packets to the world outside your telco, you can connect to a SIP server (whether an IETF SIP machine in an SDP, or an IMS Call Session Control Function) out there. That means that virtual carriers - MVNOs with some of their own infrastructure - might get to be better at interesting new applications than integrated telcos. Reducing the virtuality of MVNOs a little might mean a big increase in their differentiation, and hence their value.

And companies like Wipro will be delighted to help you do it. If they can outsource a switch, or a data centre, they can outsource you an IMS core or a bank of SIP media servers. The next twist; the big IT services companies have made a living out of commoditisation for the last ten years, specialising in stripping distinct processes out of other people’s businesses and wrapping them up into bundles with hundreds of other firms’ payrolls, workflow, expert systems or whatever. Pressure on margins has been intense; volume tremendous. Telco vendors, meanwhile, have been tempted to get involved themselves; about a third of Ericsson’s business comes from its Professional Services unit, and Nokia Siemens Networks has been pushing managed-service deals to its network customers very hard.

There’s no reason to think the IT commoditisation monsters won’t climb over the wall into telcoland. Even without the extra weirdness of rogue core networks, outsourced, hosted, and managed-service offerings for all parts of telco networks will exert steady downward pressure on prices throughout the industry. As with so many other things, the proportion of end-users’ bills made up by economic rents (as opposed to real costs of production) will climb, until it gets competed away. And after all, an IMS- or SIP-based carrier network can be defined as a combination of a really big database (the Home Subscriber Server in IMS, and whichever database feeds the AAA or RADIUS system in straight SIP), a private IP network, and a data centre full of servers doing a set of applications. Wipro, IBM Global Services, and friends do all these things wholesale. This, no doubt, is also why IBM chose to develop a line of IMS-compliant application servers and leave the core to Nortel under a partnership.

Stand by for a new kind of business, whether a company in its own right or a line of business within an IT services firm; the telecoms application provider, or alternatively, the non-virtual virtual network operator. It might perhaps own its own infrastructure, but it’s also very likely that it will outsource all or part of it. You could think of it as the Telco-in-a-Shed, as opposed to the Telco in a Box. Once building and operating networks is a commodity available to anyone, all you’re left with is licensed spectrum, some users, and a tired brand. time for some product innovation or customer intimacy?

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21C Global Summit at Blenheim Palace

The Telco 2.0 team will be supporting the second 21C Global Summit on the 12 & 13th of September taking place in the spectacular setting of Blenheim Palace, near Oxford in the UK. The Summit was founded originally by BT but is now an independent event. It gained a reputation last year for open and honest (if not fierce) debate between senior executives from around the world in the media, telecommunications and IT industries.

This year the Global Summit includes speakers like Scott McNealy (Founder and Chairman of Sun Microsystems), Peter Covell, the COO of Vimpelcom in Russia, Cory McAbee (award winning film director, actor & musician on content creation), Peter Cochrane (Silicon.com columnist and former BT Chief Scientist), Valiero Zingarelli (CEO of Babelgum IPTV and one of the founders of Italy’s Fastweb), Bill Gajda (Chief Marketing Officer of the GSM Association) and many more. Also included will be several web 2.0 companies including Kyte.tv, Jaiku and Jarman. Telco 2.0 will be moderating some of the sessions.

Attendance at the Summit is by invitation only and limited to just 180 guests only. It includes a spectacular gala dinner in the Great Hall at Blenheim, two nights accommodation at one of the best hotels in Oxford as well as the welcome reception at the Bodlean, Oxford University (the hospital ward from Harry Potter films for film buffs). To request an invite visit here.

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August 14, 2007

Facebook: a voice & messaging competitor?

We’re wary of crying wolf about threats to core operator voice and messaging revenue. Too often you end up vigorously licked by a cute puppy instead of viciously dismembered by some noisy new disruptor.

For example, Skype still represents only around five percent of global voice traffic, and most of that appears to be incremental to paid PSTN use. Only the narrow segment of international calling cards got hit. On the basis that your enemy’s enemy is your friend, and Skype also drives voice termination minutes and broadband uptake, the short-term impact has probably been positive. Skype was a form of “better telephony” but hobbled by the form factor of the PC — “much worse handset”, and thus served different needs from traditional fixed and mobile services.

We’re not so sure that complacency is in order when it comes to the new challenger for user attention, social networking services (SNS). Chatter has been a function of the Internet from before the Web; and indeed geeky users were communicating via bulletin boards long before even home Internet access became the norm. People have always been far more willing to commit time and money to talking with each other than they have in absorbing packaged media goods. The proximity of music, video clips and celeb gossip is just fodder to feed the users’ conversations.

We’ve been thinking about this area as a prelude to our forthcoming Telco 2.0 event and Digital Product Innovation Summit. So this is the first part of the Telco 2.0 outlook on the social networking phenomenon and what it might mean for operators.

What kind of meeting place?

“Social networking” is a misnomer. Most of what goes on within the walls of MySpace, Facebook and Bebo is plain old conversation among existing friends and colleagues, extended to new media types. The act of “networking” to discover new contacts is a secondary use case overall, and is tied to buying goods or dating — activities that require vertical search and reputation systems to overcome gaps in social capital and trust.

This should give operators both concern and comfort. The obvious problem is that any meeting place that offers a compelling arena for conversation is a potential competitor to telco voice and SMS. If teens launch every IM, SMS and call from within the mobile client of their preferred SNS, someone else mediates your customer experience and may control who gets origination and termination revenue.

The contra viewpoint is that the real “network” — the relationships between people — is external to the SNS (and telcos too). That means the stickiness and lock-in of the social networking service is probably lower than might be supposed. Users will merrily churn from one SNS to the next according to the whims of fashion. Their business model more resembles that of a nightclub than a telco: be the in place to hang out, at least for this season.

This plays to the strengths of operators: simple, dependable, ubiquitous services, conveniently packaged.

So if social network services aren’t really in the business of social networking, to what extent are they in the business of telephony and messaging?

Friendster or foester?

We have the following simple pyramid model of interaction around telephony, looking from the smallest to the largest scale of social interaction.

From the bottom up, the five layers are:

  • Rendezvous. The process of synchonising the meeting of two or more people to interact, and having a medium and means of doing so. Every (successful) phone call has at least one rendezvous. However, it might take a number of rendezvous attempts (via calls or messages) to get to the point of actually engaging in meaningful talk. For instance, you play voicemail tag, or someone asks if you can call back in a few minutes, or you have to set up a call via someone’s secretary.
  • Call. There is nothing more natural than people talking to each other, and the telephone wispers in our ear from afar, magically suspending disbelief that we’re yappping at a lump of plastic.
  • Conversation. Colloquially we’d say a single call is a conversation, but really it’s wider than that. A conversation may involve a sequence of interactions with some common purpose, initiated in different directions, and potentially with a varying set of participants. An email or newsgroup thread is closer to the meaning here. Telephony includes some limited “conversational” features, like missed call alerts.
  • Relationships. The more you interact with someone, the stronger the relationship becomes. If you aren’t talking, where’s the relationship? Ask any marriage counsellor. Your phone doesn’t generally do a good job of helping you manage relationships — “wife’s birthday” and “wedding anniversary” remain to be baked into the provisioning process of my next handset.
  • Community. An aggregate of relationships forms a community — workplace, club, family, sports team, etc. The user interface and pricing of telco voice and messaging products don’t lend themselves well to group use.

Go where the enemy isn’t

The diagram suggests that there’s only a partial overlap of the two businesses when it comes to telephony. Some SNS sites are looking to incorporate click-to-call and voice capabilities, but that’s not how people use them today. Still, voice will undoubtedly become embedded into the experience. So in reaction to encroachment from up above in the stack, why not hunker down and improve things in the bottom two layers, where you are strong? The answer to a challenge from a competitor product is to improve your own.

In particular, telephony isn’t nearly as good as operators like to think. Just listen in on what people around you do and say when they answer the phone or make calls. In particular, listen for:

  • People doing manual transfers of presence, location and availability data — “I’m on the train”, “I’m in another call, can I get back to you?”, “I’m driving, call me in 15 minutes when I’m there”. These sound like what should be machine-to-machine transfers of data, very expensively and inconveniently being parsed and passed through humans.
  • People establishing the context of the call. “I saw your advert in the newspaper”, “I’m calling about last quarter’s sales figures”. Some answerphones have a screening feature where you kick callers to voicemail and then jump back into a live call if you really want to talk to them. Users want to have context to help them judge whether to answer the call, but caller ID doesn’t provide it. How come nobody can tell I’m calling them back about the voicemail they left?

Your network might deliver five-nines call quality, but from the user viewpoint it’s broken: many (if not most) of the calls are unsuccessful because the rendezvous process is incomplete.

Our suggestion then is that operators need to enable better telephony features, using the network presence, location and device status they already have a natural advantage in brokering. The best approach to doing this is via an API or platform approach — we’ve already discussed the merits and difficulties in operators building a “PSTN 2.0” version of telephony alone.

If it’s any consolation, even players like Skype, with a clean sheet, haven’t got very far. For example, they have a “birthday notification” feature to tell you it’s a contact’s birthday today. But if you click on the birthday boy or girl to place a call to them, they don’t get a special “Happy birthday” screen presented. No context of how the call is initiated is ever shared. Likewise, the Skype browser plug-in never seems to want for you to “call a friend about this web page”, with the recipient see the URL and thumbnail as the “caller ID”. Skype is too busy selling Telephony 1.0 to its users.

The big prize — one that eludes Skype and eBay too — is to creep up the value chain into transactions during a call. Facebook aims low, for adverts. Carriers with long-term vision will be looking to IP networks to transform what happens when their customers call a freephone number and hits an IVR. Network operators can carry their involvement right through to payment and fulfilment.

Messaging matters

SNS sites are more of a substitute for operator products when it comes to messaging. In particular, they effectively offer a wider range of message types and delivery mechanisms. Depending on the site, you can see who has been checking out your profile (a “maybe I’d like to hear from you” signal), and can send a variety of one-press flirts, nods and winks as well as richer multi-media messages. These have different semantics to SMS. If you received an empty text message, you’d assume it was a mistake or a prank. Just like IM, they facilitate a wider range of “digital social gestures”.

A downside of the SNS approach is that you have to be within their walled garden to pick up your messages. Else you rather bizarrely receive an endless stream of email updates hinting that someone has left you a message, but reluctant to tell you who or why. It’s as if you’re not supposed to have a life away from gazing at screens big and small.

So far the PC-centric nature of SNS sites has limited their distribution. The likely outcome is a co-evolution where operators focus on the parts of the messaging system where operator assets are most important (payments, identity, etc.), such as premium SMS and services like SeeMeTV (powered by Yospace) which are dependent on not being free. The SNS messaging ecosystem will give rich functionality, but always be hemmed in by the limits of the social network interest group or brand. The interoperability problems of IM look like being replicated all over again with SNS sites, and the winners will be operators who mostly have to do nothing and wait for the users to select public telephony or messaging to get between the islands.

Conversations create calls

Telephony lets you hear what’s happening at one other place. It enhances your hearing beyond mere bionics. SNS sites (potentially) let you know what’s going on among those you care about. It’s an electric motor for your sociability: taking effort and cost out of the process of manually getting gossip.

As someone resisting having even more digital dependants to care and feed, I’m not an active SNS user. My own Facebook newsfeed lacks much of interest. Still, it’s not hard to imaging the first port-of-call in the morning not being the email inbox or world news. Who does this threaten? This hyper-personal news looks like far more of a problem to the publishing and content aggregation industry than it does to telcos. It’s easy to add in the mass media news and some adverts into your personal news; but you can’t easily do the converse without knowing who the user cares about. The only thing surprising now about Rupert Murdoch buying MySpace is that it seemed so surprising then.

Telcos have never been good aggregators and filterers of content, and there’s no reason to think that will change. It’s the IPTV and entertainment division that needs to pay more attention than the voice and messaging. Do I go to an electronic program guide to get content recommendations, or will they come through SNS services and social collaborative filtering systems like Pandora and Last.fm?

Advantage, operator

Operators also have three big assets in their co-opetition with SNS sites:

  1. They know who you interact with — and are willing to demonstrate your interest in cash. If I call you, and we speak for an hour, and it’s a metered call, what does that tell you? There’s a goldmine of latent social network data in usage patterns. Furthermore, the operator is a central, trusted party: if the users had to supply their own use data (e.g. downloaded from their device) it’d quickly be faked.
  2. They know which web sites you visit, which IP addresses you touch. The view is across all services.
  3. Mobile operators have a copy of your address book (although few operators have good network address book solutions).

Between these, there’s a goldmine of latent social network data. An operator can process this within their own domain to do smart call routing and advert presentation. The user has to trust the operator with this data anyway, so there’s a smaller privacy barrier to overcome compared to third parties doing the same functions.

Do what you’re good at, and no more

The disintermediation and endless price deflation wrought by the Internet seems to cast gloom over the voice and messaging business. Yet there’s a countervailing current: a more loosely coupled, modular industry structure that dances to the tune of the users. This means you can be successful by doing less and doing it better, because if the user likes your product, someone will mash it up into the other things the user prefers.

So if you’re a phone company, you firstly need to make your phone product better. We’d suggest the weakest place in the current product is how calls are set up. We need more contextual information to help people rendezvous at the right moment. Then once you’ve done that, your better product needs to be open enough to allow any and every partner to interact with these capabilities. Phone companies have a comparative advantage in synchronous (interrupting) communications; SNS sites are good at asynchronous messaging with large time gaps between sending and receiving.

The end of vertical integration means that operators will engage in less of the value chain. By focusing in on the essentials of the person-to-person communications experience, and integrating the handset, network and support functions, you can compete against players for whom this is just a bolt-on.

The battleground will come with an offence element: making telephony and messaging more conversational. This can be as simple as insisting handset vendors make their SMS inbox threaded, not just a flat list. You’re in the business of selling more phone calls, so help prompt the users to make them. Draw a line under the SMS, remind the user that the green button will call Bob back.

The defence side is to make the pre-call rendezvous process more robust.

Ultimately both SNS sites and telcos will evolve their business models to make money because of the network, not from the network. The area of competition will be owning the user transactions through to completion. Until eBay buys a SNS company and works out how to integrate Skype and Paypal too, you’ve probably got quite a lot of time to think about it.

In the next article we’ll look at Facebook’s APIs and platform strategy, and lessons from that initiative for operators.

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August 10, 2007

Why are there no mobile CDNs?

If you’ve been with us so far, you probably know that Telco 2.0 likes content-delivery networking (CDNing) a lot. So much so we invited an executive vice president from market leaders Akamai Networks to the next Telco 2.0 executive brainstorm this October. Even though a couple of CDN operators - Akamai and Limelight - recently had a bad day on the stock market, we’re still confident of this judgement. After all, when Wall Street is annoyed because your profits were only up 55 per cent, it’s probably their problem rather than yours.

A CDN, to recap, is a way of delivering bandwidth-heavy content (usually video) over the Internet efficiently. Standard methods have the downside that the same material has to be transferred out of the provider’s network, over the backbone, and into the user’s ISP network at least once for each user; peering and transit costs are incurred at each stage. Further, the load on the provider’s servers is a problem. In a CDN, Web servers are placed at strategic points inside customer ISPs and filled with content. Requests are then redirected to the CDN box, so each item only has to be transferred outside the ISP once.

It has the major advantage that everyone’s happy; you’re happy because the load on your own servers is relieved, and your stuff is delivered faster than the competition, your ISP is happy because their peers aren’t yelling any more, and the downstream ISP is happy because the weight of traffic has been moved inside their own system, where (depending on their business model) it’s either cheaper or effectively free. And none of this involves reducing other people’s quality of service or doing any other evil. It’s elegant engineering, and good economics.

The reason, deeper down, why CDNing works is that it understands where the bottlenecks are; the critical paths, the limiting factors, the maximum cuts. In this case, the bottleneck is the network edge, because it’s where the economic activity occurs. The Internet’s economic model is that interconnection is what creates value, realised either by barter (peering) or in cash (transit).

So why are there no CDNs in mobile networking?

Traditionally, it was because the bottleneck is in the wrong place. While the mobile radio link was really, really slow (and dodgy), there was never going to be enough traffic to necessitate CDN, and anyway, there would be little benefit in it as the CDN would be on the wrong side of the delay.

But now? In our 40Gbits Granny post, we mentioned the scale of capacity upgrades some mobile operators are putting in; upgrades that were triggered by introduction of HSPA in the radio network. With credible (megabit-class and above) data rates, the operators’ grandiose plans look..less grandiose, and the challenges rather different.

Now, mobile operators tend to be very keen on rich media content; video and music. With the bottleneck in the radio network removed, it’s time to think about how to deliver this stuff. The first problem is backhaul; the same operators buying Cisco CRS-1s are also busy laying fibre to their cell-sites. This raises an interesting question; what about CDNing below the level of the carrier? Why not bring the content further down the stack, closer still to the users? CDNing is rather less appropriate for operators who are paying per-byte for backhaul, unless the CDN server is right at the base station, but it can still save on backbone and internal transmission costs. For those operators who own substantial backhaul assets, though, it’s near ideal.

The second problem is core-network latency; one of the causes of which is that the traffic has to go anywhere near the core network in the first place. In ISP-land, the practice of having multiple cached DNS (Domain Name System) servers near users is so common as not to excite comment; but quite a few mobile operators force all queries through their Mobile Switching Centre. As each webpage may require multiple DNS requests, this can cause more delay than the radio link.

So, in order to speed things up, mobile network vendors are now offering products that break-out traffic to the Internet closer to users, as low down as the Radio Network Controller (RNC). If you’re bringing IP that close to the radio network, it begins to sound plausible that other things might join it; DNS caching, and then why not heavily-demanded content? Further, a lot of mobile networks already push rich content through “content handling” servers of various kinds to squeeze it down into more compressed formats. So why not CDN as well? Where there’s a bottleneck, there’s usually an opportunity.

Telco 2.0 is about moving to a horizontal, modular business model. Whilst much of this is driven by the Internet and pressure to become a “dumb pipe”, the reality is that we are moving to a rich and complex network architecture. Traffic shaping, storage and processing power are embedded at many points between central data servers and backbones to edge radio networks and devices. A successful operator will be the one with the right mix.

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August 8, 2007

Happy Birthday, SMS

SMS celebrated its 15th birthday in July this year, demonstrating just how remarkable the service is - still at the top of its game long after many younger mobile applications have died a death. SMS is often called the “accidental hero” of the mobile industry, but just what is its history? Steven Van Zanen, VP marketing for Intuitive Messaging at Acision - the company formerly known as LogicaCMG - gives us the low-down. (You can meet Steve and the Acision team at the Telco 2.0 event in October.)

As we all know, the Short Message Service (SMS) is a means of sending short messages to and from mobile phones. SMS was defined as part of the original GSM standard in 1985 as a means of sending service messages of up to 160 characters to and from GSM mobile handsets. Since then, support for the service has expanded to include alternative mobile standards such as CDMA networks, satellite and landline networks. At the time of inception, just what this messaging capability would be used for was not immediately clear - some were planning for telemetry, some thinking of voicemail or service alerts, but person to person messaging? That was never the plan.

Throughout the late ’80s and early ’90s as Western European GSM networks launched, they all included this messaging functionality, but almost without exception it was left dormant. Early mobile phones had a very basic user interface, and even if they included the client application for messaging it was not easily navigable.

The first SMS “text message” is reputed to have been sent in 1992 by a UK mobile network engineer to his colleagues, wishing them (in capital letters) MERRY CHRISTMAS. This message was sent from a PC to mobile phones, and it was not until early 1993 that the first handset to handset message was sent - by a Finnish engineering student within Nokia.

But by then, some European mobile operators had already spotted an opportunity; they were in the process of equipping themselves to be able to offer SMS as a commercial messaging service (albeit a niche one, as they thought at the time, and one that for a while they didn’t think to charge for). In 1992 Aldiscon and CMG, both later bought by Logica, and now Acision, secured contracts for development and deployment of the Short Message Service Centre (SMSC) intended for commercial use. Both SMSC’s were deployed in 1993 at BT Cellnet, now O2, and Telenor respectively.

Despite this early start, the first couple of years saw only slow uptake of the service, and it was not until 1999 that interoperability between the operators enabled users to send messages across networks. However its initial pricing (free!) helped SMS establish itself as a good alternative to the still-expensive mobile call, and as mobile phones found their way into the pockets of the youth market it became the obvious medium for their seemingly inexhaustible communication habits.

Over the years the technology has moved on considerably. SMSC infrastructure has evolved from a basic ‘SMSC box’ to a complete next-generation, IP-based SMS architecture, and both functionality and capacity have increased dramatically in line with the service popularity. In 1993, SMSC version 1.0 had a capacity of 10 messages per second. The performance was soon surpassed through ongoing innovation to improve capacity, reliability and accessibility. By 1999 the mobile industry saw the introduction of the first high performance SMSC, also launched by Acision, with what was then an incredible 50 fold capacity increase to 500 messages per second. Such speeds have now been greatly exceeded by today’s further 32 fold capacity increase achieved by the latest Acision IP SMSC: 16,000 messages per second on a single cabinet, with the ability to scale up to virtually unlimited performance.

The SMSC is now a part of a modular, IP based solution, where it is the engine for person-to-person messages as well as value added services and applications.

So what is left to achieve? Certainly SMS volumes are continuing to rise, in both established and emerging markets, but under pressure of competitive pricing, operators are also looking to evolve the humble text message. To quote Portio Research (February 2007): “SMS already has an installed user base of over two billion people, that’s one third of the human race […] if you want to create a service that needs a big audience to be a success, make it an SMS-base service”.

Such a high penetration service provides the perfect opportunity for operators to differentiate themselves, adding features familiar to users from other messaging mediums such as email. SMS also provides the perfect medium for mobile advertising campaigns with its unrivalled reach and personal connection to the user. Out of office, auto-forward and storage/back up capabilities are helping move SMS further into the lives of users and, due to its reliability, also into the business world for banking, tickets, charging.

SMS has reached greater heights than were ever intended for the 160 characters, but watch this space. With North America finally getting addicted to SMS, Europe’s operators are preparing to move ahead again, planning new revenue streams from SMS through mobile advertising and easy integration with online messaging. Happy birthday SMS, and may there be many more to come!

[Ed - Steve will be preparing a special stimulus presentation on new approaches to leveraging SMS for mobile advertising at the Telco 2.0 ‘Digital Advertising & Marketing Summit’ on the 16th October.]

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August 2, 2007

What Stops Marketers Creating Solutions Customers Want?

As many of you know, we are in the middle of an ambitious research project looking to tap into a global panel of experts to forecast revenue scenarios in the Telco industry for the next 5-10 years. As well as gaze into the future and set the Telco industry to rights, we also felt it would be beneficial to consider how service providers and vendors can improve their propositions and products NOW. There is a lot of talk about ‘innovation’ in the industry at the moment, but what needs to be done to turn the words into effective action?

We have decided to undertake another (much smaller) piece of analysis to test our hypothesis about what is inhibiting innovation in marketing and product development departments today and what needs to be done to improve this situation. In this post we outline our hypothesis. At the Digital Product Innovation Summit in October (part of the Telco 2.0 event), we will feedback the results of our interviews with senior marketing executives from across the service provider and vendor community, presenting delegates with an ‘insider’s view’ of the current drivers and barriers to proposition/product innovation and a set of recommended actions to improve this.

Our Hypothesis:

You can learn a huge amount about consumer behaviour and attitude through observation and discussion - I have just experienced this first-hand looking at the french attitude to quality of life/customer service etc. on holiday in the Dordogne. Wandering around French towns and villages reminded me of the long-standing misunderstandings that exist between, for example, the English and the French.

There’s something Vichy about the French. Ivor Novello

In France it is rude to let a conversation drop; in England it is rash to keep it up. No one there will blame you for silence. When you have not opened your mouth for three years, they will think: “This Frenchman is a nice quiet fellow.” Andre Maurois

The UK and France may only be separated by 12 miles of water and be ever more closely bound together by the ties of the EU, but there are fundamental differences between the way things are done between the two countries. Some obvious examples:

  • Brits seem to buy everything from supermarkets and retail chains; the French prefer specialists, hence the survival of butchers, bakers and markets throughout France.
  • Britain has caught the ‘customer service bug’ from the US, France has not. Everything is open on Sunday in the UK and shut in France (including petrol stations). Shops close for 1-2 hours at lunch in France even in large towns - in the UK the mantra is 24×7.
  • The French embrace children, the British tolerate them. In busy French restaurants, waiters and waitresses went out of their way to have a discussion with my children (whose French is tres ropey), in the UK they can’t get away from them fast enough.

I am not making judgements here, just outlining what I experienced in two short weeks on holiday.

The point is (as every marketer knows): Customers really are different - by region, by market, by age, by gender…by segment. Different attitudes, different needs, different behaviour. And you can only build propositions that they want by REALLY, REALLY understanding them.

The Telco Industry is Poor at Learning through Customer Interaction

Currently, operators largely seek to learn about customers and their needs via quantitative research. Market research budgets for quant research are huge because it is widely used to serve many purposes: to understand customer needs; to create customer segments, to validate attitudes to products/services, to gauge customer satisfaction. Qualitative research and customer focus groups, by contrast, are usually employed sparingly to test specific product features or customer usability.

Mainstream quantitative research is relatively poor at identifying underlying segment needs and opportunities to meet those needs in new ways. It is too blunt to really probe customer attitudes and behaviour in detail. It cannot meaningfully explore responses to existing products and propositions, gaps in the current service portfolio, and what options exist to develop innovative new propositions.

Time and time again, this type of research fails to drive innovation because it asks the wrong questions and tends to validate the current business model or product offering.

If I had asked people what they wanted, they would have said faster horses. Henry Ford

Only superficial interaction is possible with customers through quant research, leading to spurious conclusions (such as customers wanting faster horses rather than cars or cheaper fixed voice rather than a phone that costs more but is personalised and they can carry around with them). Henry Ford was wrong. If he had really probed horse-riders then he would have learned that they had a whole series of needs: speed, reliability, security, storage/carrying capacity for people and luggage etc, and that his motorcar ‘concept’ fulfilled those needs better than a horse (even a faster one).

There are essentially 2 sources of research for input to the innovation process:

  • Customer behaviour data (CDRs etc. for telcos) where empirical evidence can be used to induce attitude and need which in turn gives input for enhanced or new solutions.
  • In-depth customer focus groups where customers can be engaged in discussion as well as observed testing/using products and services (the formalised approach to what I did in France)

I know from (bitter) experience working and consulting at a host of operators and vendors that neither of these are done well in the Telco industry:

  • CRM is at a very early stage and extracting customer data from systems is hugely laborious (marketers always complain that they are flying blind and need to understand the impact of product, pricing, place (channel) and promotion activities that they have instigated).
  • Most proposition and product managers do not talk directly to customers from one year to the next - research is an arm’s length process which is handed over (in the form of a written brief) to the market research department who, in turn, farm it out to an agency.

This is one critical reason why innovation is limited amongst operators (and their suppliers)- management is just too distant from customers compared with innovative start-ups that seek to create solutions for themselves/people like them and therefore are ‘living like their customers’.

A couple of years ago I created a global SME proposition for one operator on the back of a handful of discussions with friends who ran small companies. The proposition required a significant amount of investment from the company, but a few calls from me with potential customers was the only demand-side validation that was required of me. And this was substantially more customer research than any of my peers undertook for their segments! Another example of this insulation from real customers and customer issues is that nobody at a Telco or vendor ever sees a mobile phone bill (it’s paid for them) - they don’t fully appreciate the issue of roaming or data usage ‘sticker-shock’.

As our Voice & Messaging survey indicated, managers are not confident that they really understand what customers want in the core Telco product (voice).


(We explore this issue, and solutions to it, at length in our Telco 2.0 Strategy Report: Voice & Messaging 2.0, Telephony & Messaging meet Skype and Yahoo! which is being published in September and is full of case studies and examples of innnovative start-ups.)

Market Research and Product/Proposition Managers (in Telcos and agencies) are relatively poor at synthesising feedback from customers and responding with innovative solutions. Part of the reason is a lack of expertise - the process requires a strong understanding of technological and commercial issues and of customer needs as well as a good dollop of analytical know-how and creativity. Many marketers either come from the technical department of operators or from the marketing departments of FMCG companies: neither background tends to yield the required blend of skills.

But, perhaps more importantly, managers are not incentivised to create solutions, they are increasingly measured on their ability to either execute on existing propositions (Operational Marketing) or analyse information about past performance (supposedly Strategic Marketing): What does this mean? What went wrong? How can we increase revenue and margin on this product? What promotion should we try?

Thus, strategic marketing in the Telco industry has become too much of an accountancy-type exercise where marketers look backwards over previous performance (and justify their past decisions), rather than looking to create solutions for the future. When proposition and product concepts are created, too often they have not been tested in the crucible of customer interactions. This results in sub-optimal solutions and business cases that don’t pan out.

Make Management Responsible for Customer-Led Innovation
The STL Partners ‘Telco 2.0’ view is that CMOs and Marketing Directors need to ensure that EVERY proposition and product manager develops at least 1 product or service innovation a quarter that has been developed as a result of DEMONSTRABLE direct customer observation and interaction.

Every innovation must be created, or at least pre-screened for demand, with at least 1 focus group and tested and improved through direct customer interaction - this simply does not happen at present. Force managers out into the field - make them understand the customers in their segment or product area.

We recently came up with a proposition for a start-up client in a developing market (top secret). The proposition is radically new, highly disruptive, and based mainly on several years of deep thinking and the creative spark of our Chief Analyst Martin Geddes. I am delighted that the start-up is choosing to stress-test and refine the proposition in the field by adopting a software/internet beta launch approach in a particular region prior to a national (and ultimately multi-national) launch. This is taking customer engagement into the realms of the way Google or Yahoo! does things, and I am convinced that this will mean a.) that our inital concept is altered (in some places radically) and (b) substantially improve the chances of success.

If operators (and vendors) adopted this approach they would have a greater chance of creating a steady stream of validated incremental improvements for customers across the telco service portfolio ranging from low investment/low return ‘quick-wins’ through to bigger projects involving substantial investment and partnership (one of which just might be the next SMS/iTunes/Google-size winner). Marketing departments would be forced to focus on looking forward again on IMPROVING existing products and services and creating new ones. The new culture of innovation and ‘continual beta’ would be relatively simple to implement and, crucially, could easily be underpinned by the HR performance process (customer interactions/innovations per quarter etc.)

We look forward to discussing these views with senior executives over the next couple of months and feeding the results back to delegates at the Telco 2.0 Executive Brainstorm on 16-18 October.

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August 1, 2007

40Gbits Granny and the Future of Telecoms

The news that Sigrid Löthberg, Peter Löthberg’s 75-year old grandmother, has the world’s fastest Internet connection has now passed through the Web’s digestive tract. All the oohing and aahing is complete. It’s certainly very cool that she has 40Gbits/s connectivity and a CRS-1 router in her garden shed, but it is only a demonstration project.

However, it does tell us quite a lot about how Cisco thinks the future will be. And there will not be a CRS-1 in every pot any time soon. The fibre, well, that’s a different story. Sweden, like some other countries, has a number of projects that aim at the creation of shared, open-access fibre infrastructure. It’s a question of getting the institutions and economics right; aggregating enough customers to spread the capex while guaranteeing open access to preserve competition. And that, by the way, is what the Digital Town strand of Telco 2.0 is all about, and the focus of the Digital Cities summit on the 18th of October: find out more here.

Cisco’s website has all the specs you could ever need on the CRS-1. It’s pure engineer porn; an IP router with a switching capacity of 320Gbits/s in its smallest configuration, with 40GBits/s linecards, using native IP directly over DWDM fibre. Fibre wavelengths can be used up to 2000 kilometres from the CRS-1 without regeneration. And, should this somehow prove insufficient for one’s requirements, more CRS-1 units can be added to the system without going offline, up to a total of 92 terabits/second. Whoo.

Who might ever need such a thing? The clue is in the name; “CRS-1” stands for Carrier Routing System One. Nobody who isn’t a telco, except perhaps the NSA or the Chinese secret police, is ever likely to require one of these. When the first ones appeared, in 2004, it was said that the figure 1 stood for one CRS for each country. But there’s a long tradition of these predictions proving wrong; IBM boss Thomas Watson, of course, said there was a world market for maybe five computers. What people forget about that remark is that, when he said it, “computer” meant something even more technologically exotic, and expensive, than a CRS-1.

More of them than expected have been sold, to some surprising customers. Mobile network operators, facing unexpectedly high demand for data after deploying HSPA, have been notable buyers, usually around the same time they decide to pull fibre to their heaviest cell-sites. To condense, though, the CRS-1 is proof that Cisco expects telcolike organisations to exist, and to depend entirely on IP, and access network bandwidth to rise enough to fill the machine. Condensing even more, and exposing it to Telco 2.0, someone’s got to handle the bits, whatever else happens. It’s also worth pointing out that Cisco is deeply uninterested in whether telcos do IMS, pure SIP, or IP-SDP; for them, the next-generation network is IP.

Even if you’re a networkless, pure application service provider, you’re still going to be routing eyewatering quantities of bits if you’re doing it at telco scale - so you’re a potential customer. Even if you’re Skype, your success depends on the bit pipes having sufficiently powerful pumps. The lesson from Google - and Vodafone, which decided to invest heavily in core networking from the beginning - is that you can’t fake infrastructure. If your applications are of equal quality, the side with the best infrastructure wins. If your apps are of somewhat lesser quality, and your infrastructure better than the competition, you still might win. You can pretty-up dodgy applications; you can win through marketing; but if the infrastructure can’t take it, you’re doomed.

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

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