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February 29, 2008

Highlights of the CMO Forum at Mobile World Congress

150 representatives from across the global mobile marketing value chain gathered for a brainstorm at The CMO [Chief Marketing Officers] Forum at the Mobile World Congress in Barcelona two and a bit weeks ago. The focus was “Mobile as a True Marketing Channel - Realising the Opportunity”. Lots of others tried to get in, but it was strictly invitation-only. Telco 2.0 facilitated the event using our ‘Mindshare’ interactive tools and presented some new research. It’s interesting to compare the output from this event (below) with the Telco 2.0/GSMA Digital Marketing & Advertising Summit in October (output here).

For those who weren’t in Barcelona, or couldn’t get past the bouncers on the door, here’s what happened:

Henry Stevens , in charge of the Mobile Advertising programme at the GSMA kicked off proceedings on a positive note by announcing that the five major operators in the UK (Vodafone, O2, Orange, T-Mobile and 3) had just agreed to collaborate on developing a common set of standards for customer profiling and metrics.

The full import of this became apparent during the first session when Mike Anderson of , Deputy Managing Director of News Group Newspapers (one of the biggest brands in the UK) and Sunil Gunderia VP at Walt Disney indicated that standard approaches to marketing and advertising across network operators were critical for the mobile platform to develop into a major channel for brands and content players.

Both Mike and Sunil were positive about the opportunity in mobile but felt that substantial challenges remained. Mike illustrated this point by explaining that it had taken News Group two years to conclude deals with the five UK operators. Another speaker pointed out that it would have taken him only a few hours to have developed marketing campaigns for News Group across Google’s entire web footprint!

Sunil pointed out that, although the walls were crumbling around many operator gardens, closed portals remain in too many markets to make mobile a truly global opportunity for content players. He also pointed out that too many operators still discouraged off-portal downloading of content through punitive data charges and that flat rate data pricing was critical if the industry was to move forward.

Prior to the first session, Brian Featherstonhaugh, Chairman and CEO of OgilvyOne, had challenged delegates to think differently in the digital age. He explained that the 4 P’s of marketing - Product, Place, Price, Promotion - were outdated in the digital age and suggested their replacement with 4 E’s:

  • From Product to Experience: It is no longer sufficient to focus on product features, instead marketers need to focus on the full brand experience associated with a product or service. The digital age with its greater interactivity enables marketers to achieve this in ways that have not been possible in the old static mediums.
  • From Place to Everyplace: Mobility has enabled consumers to experience products and services anywhere, anytime. No longer is the consumer confined to store locations or other static locations when buying or using products - they can be anywhere.
  • From Price to Exchange: The digital world is increasingly about consumer control and intervention. End users don’t just pay for things with cash; they may offer value in the form of attention, participation or information. Thus the digital age can lead to more complex exchanges of value which the marketer needs to consider in product and service development and promotion. And talking of promotion….
  • From Promotion to Evangelism: There is a need to unite people around what Ogilvy term ‘The Big Ideal’ - something which inspires people and causes them to evangelise a brand. Brian noted the success Dove has had with its concept of women feeling good about themselves for what they are rather than aspiring to model-like proportions.

Richard Saggers Head of Mobile Advertising of Vodafone Group focused on the opportunity for the mobile industry in advertising and the steps Vodafone is taking to realise the dream. He focused on the opportunities that the mobile gives for brands to interact with their customers and the successes mobile has achieved already compared with other media - banner click throughs of 2-3% versus 0.2% on the web.

Then it was Telco 2.0’s turn to explain that marketing and advertising is only a small part of a much bigger opportunity for telecoms operators. We introduced the two-sided telecoms market concept, explaining that operators have a huge opportunity from enabling ‘upstream’ parties (advertisers, retailers, application service providers, governments, developers, etc.) to better interact with their customers.

Regular readers of this blog will be familiar with this. We focused on the wide array of latent telco assets, particularly around data, which will enable operators to help upstream parties:

  1. Identify and Authenticate end users safely and securely
  2. Market and Advertise to end users in a more effective manner by making marketing more targeted and relevant
  3. Transact more easily with their customers
  4. Fulfil on-line (e-content) and off-line (physical goods) orders more cheaply and effectively by leveraging QoS, presence and location capabilities
  5. Charge for goods and services using Telco pre- and post-pay billing and payments services
  6. Support their customers better using Telco-enabled call centres and customer care facilities

We presented highlights of our recent Telco 2.0™ research which showed that the opportunity for operators to support upstream customers as being a $350 billion market in 10 years.

Around $95 billion of this was from specific value-added services (VAS). Advertising, Marketing Services and Business Intelligence formed one VAS worth around $34 billion in 2017:
We went on to say that this was not a certainty but required operators to work together more effectively to realise this (see Summary of the day below which closely reflects the closing comments of our presentation).

After lunch, the debate turned to 3 critical areas for turning the theoretical opportunity into a reality:

  • Extracting and Abstracting Data - from data to information
  • Turning Data into ‘Currency’ - making information valuable to brands and other third parties
  • Independent Measurement and Reporting - measuring success consistently

Omar Tellez of Synchronoss proposed a simple extraction process for data which focused on 3 pieces of data and explained that these accounted for a large proportion of the information required for personalisation and targeting of media. They co-presented with Vivo, the Brazilian operator, which had tested the solution on its own customer base. There were some mutterings from delegates that such an approach was interesting but unlikely to become a standard if it was seen as a Synchronoss proprietary solution.

TeliaSonera’s CTO for R&D Johan Wickman argued that ads on the mobile were inevitable in the near future and that operators had a valuable role in ensuring that ads remain relevant to users. He felt that operators must use their data assets to help personalise advertisements. He went on to show some results from a TeliaSonera pilot showing how targeted ads can increase attention and interest from users with only 10% of users responding positively to non-profiled ads compared with 80% for profiled ones.

Mark Donovan, CMO at M:Metrics focused on the need for simplicity and standardization if operators are to make their data. He proposed that operators should make everything available to the ecosystem as this would maximize value. However, it was not quite so clear how operators (a) realize value from such openness and (b) protect their data assets and customers. He shared M:Metrics data showing combined behavioural and demographic mobile user profiles and explained how valuable this is to media planners and buyers seeking to target certain segments with their brands.

The final section focused on specific case studies for mobile marketing and Jessica Greenwood of Contagious Magazine kicked off proceedings with several examples of ‘best practice’ mobile campaigns from the creative standpoint.

The final two presenters were from operators: Pekka Ala-Pietilä, Founder of Blyk and Rick Joubert, Executive Director at Vodacom. Both presentations were fascinating and contained two overriding messages for the operator community:

  1. Do something now! Learn by jumping into mobile marketing. Too much analysis and planning won’t help when operators are seeking to develop something so new and so different to their core business.
  2. Keep things simple. There is a temptation for operators to try and offer a full suite of marketing capabilities now. This is unnecessary as value can be created for both brands and end users through a simple approach.

The Blyk approach has been to simplify things by focusing on a tight demographic (16-24 year olds) which immediately limits the types of marketing message required. Further targeting has been achieved by asking end users (‘members’ in Blyk parlance) specific questions about their interests when they join Blyk. They are only marketed too via SMS and MMS - two media that the youth segment is very familiar with. In return for receiving up to 6 SMS or MMS per day, members get up to 217 texts and 43 minutes free. Blyk explains that this is sufficient to cover the usage of two-thirds of all 16-24 years. In reality, it is likely that Blyk will benefit from additional paid-for usage from members as well as inbound termination.

The ad-funded model therefore fits with the standard MVNO subscription model nicely. And the results of the marketing are very impressive: an average click-through rate of 29% from the first 116 campaigns compared with 0.1% for email and 0.02% for banner ads. The click-through rate will, no doubt, go down but is still likely to remain far in excess of other media and demonstrates the potential opportunity in mobile for brand advertisers. We are planning a more detailed analysis of Blyk’s business model shortly.

As we have pointed out before, our thinking is that the advertising alone may struggle to generate sufficient revenue aone to cover network and marketing costs but that Inbound Termination and Overage MAY be enough to fill the shortfall and make Blyk viable. Overall, we are encouraged by what Blyk has done and the management team is very experienced and very bright.

The success of Vodacom’s foray into mobile marketing can be gauged by a few key stats that Rick relayed:

  • Having started commercial operations in October 2007, mobile marketing revenues at Vodacom have nearly outstripped on-portal content revenues already;
  • Some inventory is sold out 2 months in advance;
  • 75% of brands have re-booked second and third campaigns after an initial trial
  • Excellent results from recent campaigns: 100,000 leads per month generated for life insurance company; 84,000 downloads of Nike branded content; increased calls to National Aids (HIV) Helpline by 150% (crashed the 100 seat call centre!)

When asked about the dangers of alienating customers with spam, Rick responded that they did not think of the marketing as spam but as a service. He suggested that the critical thing for end users is to provide them with value in return for the marketing. In South Africa, they have had particular success with a free text service, ‘Call Me’, which enables mobile users with no credit to send a free text asking the recipient to call them. The cost of the text is covered by an advertisement appended to it. This is relatively unobtrusive for the recipient and is more than outweighed by the value of receiving the ‘call me’ message.

Such a service may not be directly relevant to mature markets but something similar could be. Most operators already send free alerts to customers when someone has called them and they have missed the call. Why not add an advertisement to this free service?

Rick came up with 5 key lessons from launching Vodacom’s mobile advertising business:

  1. Focus and invest. This is a new business not a new product and requires commitment and dedication from top management and staff.
  2. Take direct responsibility for revenue. Don’t expect agencies to do the hard work for you - establish relationships with brand managers directly and educate them.
  3. Align incentives to traditional media incentives. Ensure agencies are not disintermediated but are rewarded appropriately for placing business with you.
  4. Create end-user value. Build value in to the marketing channel - the ‘Call Me’ service is a good example of this.
  5. Create ubiquitous mobile media. Don’t just focus on mobile internet and rich media. Build mobile marketing into mass-market products and services (SMS and voice) and so develop scale.


Overall, we reckon that the conclusion of our presentation gives a pretty good summary of the day:

  1. Brands and content players feel that mobile has great potential but far more needs to be done to create a platform which is large scale and cost-effective. It remains too fragmented and too difficult to merit being a core part of a brand’s or content player’s strategy.
  2. The potential opportunity for the operator community is huge. Advertising is a small part of a very attractive 2-sided telecoms market opportunity which encompasses Identity, Authentication and security; Marketing and Advertising ; E-Commerce; On-line content delivery; Off-line (physical goods) order fulfilment; billing and payments; and customer support and care.
  3. This opportunity will only be realised if operators add data mining to their core skills. They possess the data assets to enable upstream customers to interact more successfully with end users but do not yet possess the skills to exploit these.
  4. A standard approach to customer profiling and metrics is required and the recent announcement from the 5 UK operators is a positive move.
  5. Planning is too often used as an excuse for procrastination. The best way to learn is to enter the market.
  6. A successful mobile marketing (or 2-sided) play for operators requires a separate business unit:
    1. Board Level Support - this is a big strategic play
    2. Joined-up Business Case - think beyond marketing
    3. Separate Dedicated Organisation - so the parent company cannot swamp the baby
    4. CRM & Data Mining Expertise - Google currently do far more targeting than operators with far less data
    5. Collaborative Process - no operator is big enough to go-it-alone; there is a need to work together (as operators did in developing the GSM standard 20 years ago)
    6. Business Model Development - a rate card for advertising is the starting point but the business model for a 2-sided business is complex. Determining who to charge what will take significant thought and testing.

[Ed - for the next stage of the debate on this, come to the Telco 2.0 Executive Brainstorm in London in April].

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February 28, 2008

$250bn? You’ve got to be kidding…

In preparation for the big Telco 2.0 event in April, we’ve been spending a lot of time socialising the ‘two-sided telecoms business model’ concept and our market sizing analysis with senior execs from different parts of the value chain and in different geographies. We’ll be releasing more supporting analysis on this blog over the next week (to follow up the supremely popular posts on the effect of the BBC iPlayer on ISP costs and price discrimination in voice). We had a good 3 hour grilling last night from Andrew Bud, Founder of mBlox and the Vice Chairman of the Mobile Entertainment Forum. Extremely useful, thank you Andrew.

Here is a more gentle probing of our CEO by Telecom TV at the Mobile World Congress:

[Ed. - The 4th Telco 2.0 Executive Brainstorm on 16-17 April in London will debate how to realize this opportunity. Free Telco 2.0 research for all participants. Details of offer here. (Supported by GSMA, Yankee Group, mBlox, Intel, Telecom TV and others.)]

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February 25, 2008

Airline 2.0: How Telcos can do miles better with minutes

In our previous post on the airline industry, we noted how they had created a 2-sided business model using frequent flyer miles. These sub-divide the product (seat reservations, i.e. “options to fly”), and the sub-divisions can be sold at a significant profit to upstream partners like banks and supermarkets. Furthermore, this generates considerable free cash flow. So how can we apply these lessons to telcos?

Hey! That’s just like us!

When an ISP sells you a broadband plan, it’s selling you a sequence of “options to communicate”. Every time you fire a packet down the DSL line, you’re redeeming one of those options. (This approach has been studied in some detail by the academic community using options theory.) Today we tend to only sell that in a one-sided market, as a $40/month “unlimited (subject to arbitrary whim)” ISP plan. This is a particularly bizarre proposition, as the best possible thing to happen from the ISP’s perspective is that the customer doesn’t use the product. Your keenest customers, who find the most ways of using it, also create the most cost, and you end up punishing them with threats of digital exile, or punitive overage charges.

A bucket of minutes is much the same — a bulky product that looks amenable to being broken up. So can we sub-divide this, re-package it, and sell it at a higher margin? Or at the very least enable some value-based pricing and price discriminate between users willing to pay more, and those of a more thrifty persuasion?

*The first step towards a 2-sided market: indirect sales channels*

Just like the last article, this one is being written on a plane. I’m guessing there around 180 passengers aboard, all heading towards Madrid. I expect half the people aboard live in the UK and are just going to Spain for a short business or family trip. This is what a real microsegment looks like. Traditional market segmentation sees a static, broad demographic view. We’re just a transient bunch of folks at 32,000 feet all being flung in the same direction for two hours.

The EasyJet in-flight sales trolley has only two communications products for sale. One is a pricey near-field peer-to-peer signalling system called “perfume”. The other is from one of the roaming SIM card providers. This isn’t good news if you’re a mainstream mobile telco. The best you can hope for is that your customers smell better on arrival. The worst is that you lose 100% of your roaming fees.

The telco web portal, store or call centre will never be the right context for a targeted “Going to Spain for a quick trip” offer. The job of the telco is to support and supply those who have a truly close relationship with the customer. (Billing people isn’t a “relationship”, it’s alimony.)

The pain in Spain is buying on the plane

So what if instead you could buy a €25 scratch card with an activation code you text to a short code on arrival? Every European operator would participate. This would give you, say, unlimited calling within Spain for 7 days, plus 100 minutes to call your home country, and 10Mb of data. Plus, you’d be sent a link to a URL to download a sponsored Java application for your handset that would include an interactive map and city guide, some m-coupons for key attractions, and a search facility for hotels, restaurants and car rental - all data charges included.

In other words, it’s just your good old-fashioned prepaid calling card, but rather than being disintermediated, the mobile operator cuts itself in on the deal.

Would this cannibalise existing revenues? Not really, because just like hotel telephone charges, prices for “standard” roaming would rise to reflect the occasional, emergency or naïve usage. The price of wholesale minutes could be set above any indifference point.

Behind the scenes we’d have to evolve how wholesale and settlement markets work. But then the blockbuster telco products are always precisely the ones which get roaming and interoperability fixed.

From ten miles a minute to a minute for every ten miles

How could we move to a true two-sided market? Easy! Just invert the model of all the US long distance players. They spend a fortune bribing customers to switch carrier, using frequent flyer miles as one of the inducements. Why not instead get EasyJet to spend a fortune on buying wholesale minutes and bundling them up with flights as a combined offer? Or why not enable the low-cost carriers to offer mobile minutes as a reward? The telcos could offer such a promotional marketing platform as a 100% outsourced service to low-cost airlines.

You’re just issuing a private currency, and enjoying the float from seignorage. We already see minutes as a retail currency in Africa and SE Asia. Why not in developed markets, but adapted for the needs of those markets with a richer wholesale structure? What greater gift could you give your customers than more contact with friends and family? And what better permission marketing opportunity than to once in a while remind your user “The next 50 texts are on us - do check out our new products…”.

More missing middlemen

We can see the Blyk model of ad-funded communications being stretched. A weakness of Blyk is that the messages and minutes come as a “right”, rather than as a gift from a named sponsor. For students, their bank should be a major minute sugar daddy. Also, Blyk has to carry the full costs of acquiring customers and servicing them, as well as keeping up with the other carriers in creating parity in their offering. Better to just be a cross-carrier platform for promotional services, using minutes and messages as a currency? All these new models will require the growth of wholesalers who aggregate and re-package access for the upstream partners.

It’s also not hard to find ways to make this into a churn-buster, in the same ways that the airlines use elite flyer tiers to accentuate the pain of separation. Would a year’s “free” mobile use tip your decision on where to buy a mortgage, car, luxury holiday? Would 50% off your bill get you to switch supermarket? The potential size and value of the new wholesale markets could be significant in a world where churn costs increasingly dominate the net customer lifetime value.

After all, never underestimate the power of “FREE!” - for in a Telco 2.0 world, that’s where the highest margins lie.

[Ed. - more examples of business model evolution at our big event in April in London].

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Ring! Ring! Hot News, 25th February 2008

In Today’s Issue:: Flat-rate menaces US cellcos, mobile voice volume booms, COLT feels the pain, Voda/Orange mast-share, OFCOM after the fibre, mobile filth disappoints, DVD Jon turns on mobiles, Pakistan breaks the Internet, GSM crypto cracked, BlackBerry down again, Facebook loses traffic, microwave spectrum in demand, France resists Reding, pretty PDFs, and Sprint-Nextel goes all Telco 2.0…

It was the week of flat-rate: all US national mobile operators are now offering flat-rate calling plans, as well as flat-rate data plans. Some day this war’s gonna end. We knew T-Mobile USA’s UMTS rollout would boost competition; we just didn’t think it would happen quite that quickly. Broadband incentive problem, meet US MNOs; US MNOs, meet broadband incentive problem…as Telegeography points out, this is ugly news for the landline world as well.

Here we go; mobile voice minutes of use in Europe are expected to whizz past fixed any time now.

Enterprise-focused alt.telco COLT, meanwhile, reported a 6.7% revenue drop for the year to December 31st; voice was of course the problem, falling 19%, while data traffic compensated with growth of 9.8%. COLT’s large financial-service customers can be expected to be early movers to enterprise VoIP.

The telcos’ first line of defence against the great squeeze is cost-cutting; in the UK, Vodafone and Orange have announced a major infrastructure-sharing agreement. Rather than actually share a network, they’re going to install separate radio equipment on the same cell-sites, which they reckon will actually save them 3,000 sites in total, thus making a big cut in their rent bills. Despite The Register’s sarcasm, it could well be true that network quality will increase; optimising a WCDMA network often involves actually reducing the number of cells, as inter-cell interference is a major negative contributor to the link budget.

And more fundamentally, both networks’ radio planners can’t have been right all the time, or the cell-sites would all be in the same places anyway…

Another solution is to get the fibre out there already. OFCOM is beginning to press the UK telecoms industry about this, announcing a consultation on how to fund a national fibre access loop. Whatever they come up with, it probably won’t be cross-subsidised by “adult video chat”, even if “users regularly return to chat to the same hostess and develop a virtual relationship with her”. The mobile filth market is predicted to be worth $453m in Europe by 2012; peanuts compared to telcos’ CAPEX requirements.

Perhaps someone ought to have realised that highly portable mass-market devices with cameras and Internet connections are not obviously a technology enabler for selling dirty videos, especially now hacker legend DVD Jon’s mobile filesharing platform is out there.

In this light, it’s not surprising Pakistan wanted to censor YouTube. When we talk about censoring the Web, however, we usually mean censoring it for your downstream subscribers; not everyone else in the world, as Pakistan Telecom did last night when their fancydan Internal BGP trickery went wrong, leaking a spurious more-specific route for YouTube’s /24 to the Internet at large. Routing leaks have happened before; this one, however, combines two key factors that are certain to lend it political sex. Those being a) frivolous video sharing, and b) Muslims. So there’s now a reasonable chance that the various proposed means of preventing them will get deployed.

If you think the prospect of someone injecting “ 3356 6461 40898” (ok, ok, that’s a more-specific route for salesforce.com, giving their real AS PATH and the Russian Business Network’s AS number) is bad enough, the A5/1 algorithm that encrypts GSM phone calls has been cracked for a total hardware investment of $1,000; it’s time to improve your voice and messaging products, and privacy is a great place to start.

Similarly, BlackBerry has had yet another major outage; overcentralised, who me? And guess who’s making the money from Facebook? That’s right - their hosting provider! Although even they might not be doing so well; Facebook traffic is apparently falling.

Don’t imagine that falling backhaul costs will save you, either; there’s a reason why Arqiva and BT are buying newly released point-to-point microwave spectrum. Infrastructure; you can’t beat it. And Microsoft is out there, along with all the other consumer electronics and IT vendors, just waiting for a slip by Nokia.

The good news? France isn’t on board with Viviane Reding’s scheme for a monster EU-wide telecoms regulator. That’s something. Mobile content can look cracking, even if it’s created from PDF files! The consumer electronics/telecoms crossover is creative. And what, what if there was some kind of alternative business model?

Well, look what’s happening at Sprint’s WiMAX division (we still can’t bring ourselves to call it XOHM). Rather than offering “mobile Web” or some such, or just Hovisnet (the Internet with nowt taken out), they’re looking to create a platform that offers more than just connectivity - open APIs for location, identity and authentication, device management, and QOS control. Now that’s genuinely Telco 2.0.

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February 20, 2008

E-Comm Event - Special offer for Telco 2.0 readers

If you can get over to Mountain View, California for March 12 - 14 we can’t recommend highly enough the Emerging Communications (eComm) Conference 2008. If you use the discount code ‘telco20’ you can also receive 15% off the entry price as a Telco 2.0 reader. With its growing roster of speakers from among the world’s leading thinkers & innovators in telecoms, the organizers aim to “help unleash a ‘gold rush’ of innovation and democratization in the global telecom industry”. The Telco 2.0 team will be there, presenting and supporting. Here’s the focus for what looks like being an important debate on radical innovation:

Telecommunications has been stagnant for too long. For all the talk of advanced services, little have appeared. The rest have near-zero consumer traction; and the Internet space has remained fixated with plain old telephony over IP (VoIP). Yet we are on the brink of a communications gold-rush brought about by open spectrum, open handsets, open platforms and technology advances in positioning, digital identity, data sharing and social networking. Opening keynotes include Google’s Manager of Mobile Platforms, Rich Miner and Skype’s Manager of Audio & Video, Jonathan Christensen. Check it out here.

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Re-packaging voice minutes to raise margins

The price of a marginal voice minute is falling all over the world. A basic access bundle of voice, messages and data is becoming the norm in many markets. That bundle offers an ever-larger, or even unlimited, amount of traffic. At the same time, there’s a dramatic explosion of new kinds of voice going on — embedded in games, mobile VoIP, IM clients growing a voice capability, web-based click-to-call, extensions to enterprise VoIP systems — and none of them are by default inside the telco.

In case you missed it the first time, here are the results from our Broadband Business Models survey on this score:


The message is simple: non-operator voice-enabled application are going to grow very fast. That’s not our opinion, but that of you and your peers. (Our opinion is that the numbers are a little aggressive, but not by much. It may take a 2-3 extra years. Still, contrast mobile in 2008 with 1998 to see how dramatically the world can change.)

If you’re a phone company, and you’re still on Plan A of selling large buckets of voice minutes, it doesn’t look like a very attractive future. At the moment, telco voice is still just about growing in volume, although margins are often vanishingly tiny on fixed line, and falling fast on mobile.

So what could we do about that? The Telco 2.0 way is to divide up your bulk product, and re-package it and distribute it in new ways. We’re going to use dating as an example of how to do it.

The danger of voice becoming a driver of cost, not profit

Mobile operators make a lot of money from lots of short phone calls. Even in heavy-user markets, such as Finland, the average call length is around two minutes; but even this is skewed by a small number of very long conversations. Many of these calls are simply manual transfers of context data, such as your location and availability. Telcos have usually been unwilling to look at rethinking the core voice proposition for fear of cannibalising their all-important voice minutes of use. But as you move towards unlimited buckets of use, the incentive switches to creating value and differentiation.

Voice uses more bandwidth than messaging, presence, availability, and the like. It also requires the use of equipment beyond basic IP routers, such as soft switches or SIP media servers, and skilled technicians to support them. Minutes are actually a cost; a measurement of activity rather than value to the user.

Different types of call have different values to the caller and callee - but telcos don’t get this

Understanding the social meaning of telephony is crucial to saving telco voice. What that means is being able to at least differentiate between at least three crude categories of call:

  • Unwanted calls that can be eliminated, because of negative value to the caller or callee.
  • Calls that have high value to the caller and callee.
  • Calls that have low or asymmetric value.

Cold-caller telemarketers are an example of the first type, as telephony as a negative-sum game. The recipient would probably pay to not receive calls. (Indeed, US carriers who charge for unlisted numbers effectively do charge to prevent unwanted calls.)

In contrast, the surge in international voice via Skype is an example of pure interpersonal telephony — people are sociable monkeys and will talk unless you forcibly stop them. The operator 3 has cleverly re-packaged standard mobile voice minutes around the Skype calling community with its Skype phone.

Vodafone has likewise tried to put a crick in the neck of its voice pricing curve with its Stop The Clock promotion, where calls over 3 minutes become flat-rate. They are trying to segment out social calls from information and context transfer ones.

However, we think we can do better, since these offers probably do have a significant cannibalisation effect on standard mobile minutes. Could we indeed completely reverse it so that the revenue is completely incremental?

Understand the context of the call, and you can price accordingly

Consider online dating. It’s a fast-growing market. Online dating in the US has been growing 50% per annum between 2002-2006, according to the analysts at Jupiter.

It’s yet another example of a platform business; basically, you’re facilitating matches between a lot of people who would otherwise face high search costs. The margins are low, but you can easily make it up on volume, which is handy because the value of such a business to the user displays increasing returns to scale. The more people use match.com, the more likely the right one for you is to be in there somewhere. The Web created a huge new opportunity for all these businesses, just as their forerunner the stock exchange benefited from the arrival of PCs and local-area networking in the 80s.

Doing it on the Web also had some special advantages; it perhaps got rid of the stigma that attached to old-fashioned dating agencies and increased the number and variety of people participating, to say nothing of speeding up the process (find a mate and get mating… NOW!). No wonder sites grew like mushrooms. Of course, the general rules that apply to these businesses worked themselves out. Eventually, when the shake-out hit, we saw the same self-reinforcing trend of traffic going to traffic. There are two strategies that usually work in this environment; hugeness, and hyper-specialisation. But they’re taken.

Match.com is the market leader with the biggest pool of users, the Google of sex and seduction; and Craigslist caters for the more…specialised…business.

Pain and opportunity throughout the value chain

So to recap today’s situation. Telcos aren’t going to be launching winning dating services any time soon. The sales channel for voice service plans is limited to the operator’s own and affiliate stores, call centres and web portal. They need to reach beyond these, and want to find ways to charge for minutes based on value, not just volume.


For service providers like match.com, they want to differentiate service from pure Web-only plays, particularly as the specialist dating sites (where there are low barriers to entry) nibble at the edges of the mass market ones. They do offer voice-based features today, such as voice mailboxes, but it’s costly to implement “gateway” dialling services (e.g. where you dial an access number and then mailbox number and service carries cost of onward termination). They need to pay standard termination fees, which may be excessive for very chatty social uses. Premium rate numbers may be inappropriate on top of already premium dating service fee. Furthermore, they need to find ways to keep the subscriber engaged and paying membership fees even after they’ve found someone they like.

For the user, they’d like a predictable “all inclusive” price. The user wishes to protect privacy and not give out a phone number; there is a need for control. Ideally the user wants integration with voicemail, presence and other existing telco voice and messaging features. And PC-based VoIP solutions unsatisfactory due to low call quality, privacy issues in shared domestic setting, and a key use case is being mobile anyway.

So what can you possibly do to fight the voice and service innovation squeeze?

Find new channels and re-package your product

You can re-introduce value-based pricing by putting the tariff & contractual complexity away from the retail side of the telco, and onto the wholesale side. By tying access (including voice) into various applications, and selling them together as a package, telcos can improve their margins.


In our example, match.com now offers users unlimited inclusive calls to online dating partners as a bolt-on to its dating service. The fee is paid to match.com directly, and doesn’t appear on your mobile bill. These are all “click to dial” from within PC or mobile browser/download application. Prices for ‘standard’ telephony can rise as these social price-sensitive uses are segmented out. Note this model only works when you have a rich wholesale market so that it doesn’t matter which operator you’re with. You can’t just have a retail partnership with match.com that offers free calls and get the same effect, as the user isn’t going to churn to you. What if Facebook had an exclusive deal with another operator, and the user simply won’t move? Or they’re simply locked into a contract?

Understanding the context and intention of the call is everything

What we need to understand here is that your users are willing to pay to receive calls; that’s why they signed up, after all. And for one person to receive calls, someone else needs to make them. Offering direct click-to-call from anywhere on your site is a form of differentiation; because the only way you can use this is to sign up, you’re in a position to charge for it. Essentially, this means that the social value of calls is being revealed by the context from which the call is being initiated. This valuation is likely to work because it’s voluntary. No-one is likely to sign up to a pricey dating agency to get cheap phone calls to a limited pool of people — and so what if they do? They’re still paying for them.

The combination of online social networking and telco key assets means that there are more interesting things you can do; for example, you can authenticate the source of each call, and offer this as a trust factor. You don’t need to disclose anybody’s contacts, which is also useful. And these things are chargeable; for example, you could offer the ability to get in contact with someone whose LinkedIn profile isn’t public for a small fee. People don’t want to make their phone number public, because this creates a permanent option to communicate. In this case, you can offer the ability to get in touch without publishing a permanent number. The spam phenomenon exists because e-mail is free, effectively anonymous, and can be generated programmatically. VoIP could be all of these things; but charging a premium for calls which cross a privacy boundary could screen out the spam, and being able to authenticate the source could provide trust.

For the operator, of course, it’s a source of revenue, but also a way of getting access to a new market. It’s also a way of protecting yourself against the flipside of “all you can eat”; the fat guy who eats the lot, also known as the broadband incentive problem.

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BBC’s iPlayer nukes “all you can eat” ISP business model

The UK’s largest broadcaster finally launched its online video streaming and download service on Christmas Day. Plusnet, a small ISP owned by BT, has provided a preliminary analysis of the traffic and the results should send shivers down the spine of any ISP currently offering an unlimited “all-you-eat” service.

The iPlayer service is basically a 7-day catch-up service which enables people who missed and didn’t record a broadcast to watch the programme at their leisure on a PC connected to the internet. The iPlayer differs from any other internet-based video service in certain key respects:

  • It is funded by the £135.50 annual licence fee which pays for the majority of BBC activities. The BBC collected 25.1m licence fees in 2006/7. No advertising is required for the iPlayer business model to work.
  • It is heavily promoted on the BBC broadcast TV channels. The BBC had a 42.6% share of overall UK viewing in 2006/7 and therefore a lot of people already know about the existence of the iPlayer after one month of launch.
  • It is a high quality service and is designed for watching whole programmes rather than consumption of small vignettes. This is sharp contrast to the current #1 streaming site, YouTube.

A massive rise in costs

The key outputs from the Plusnet data is that in January:

  • more customers are streaming;
  • streamers are using more; and most importantly
  • peak usage is being pushed up

This equates for Plusnet to streaming cost increasing in total to £51.7k/month from £17.2k, or an increase of 18.3p/user from 6.1p/user. This is a 200% cost increase in just the first MONTH of the service.

If we assume that the Plusnet base of 282k customers is a representative sample of the whole UK internet universe than we can draw some interesting conclusions about the overall impact of the iPlayer on the UK internet. On the whole UK IPstream base of 8.5m the introduction of the iPlayer would equate to an increase in costs to £1.5m in January from 500k.

Despite access unbundling, ‘middle mile’ costs remain a key bottleneck

IPstream is a wholesale product from BT, with BT being being responsible for the transit of the data from the customer’s home to an interconnect point of the ISP’s choice. The ISP pays for bandwidth capacity at the point of interconnect. BT Retail acts like an external ISP in the structurally separated model. The overall effect of the iPlayer for the BT’s IPstream-based customers is roughly neutral, with the increase in revenues at wholesale (external base of 4.2m customers) being offset by the increase in costs at BT Retail (total base of 4.2m customers). Of course, this assumes no bandwidth overages at BT Retail, which probably is not the case as both BT and Plusnet have bandwidth caps.

In effect, incremental cost for ISPs using the IPstream product is determined by ordering extra BT IPstream pipes which come in 155-meg bit size chunks. The option for the ISP is either to allow a degradation in performance or order more capacity.

Time to buy more pipes

We tested the bandwidth profile using Wireshark watching a 59mins documentary celebrating the 50 year anniversary of Sputnik with both streaming and P2P. The streaming traffic is easy to analyse as it comes through on port 1935, which is the port used by Flash for streaming. Basically a jitter-free screening ran on average at around 0.5Mbit/sec. Using the 155-meg ordering slice this means only around 300 people need to be watching the iPlayer at the same time (peak = 8pm-10pm) to fill a pipe.

Seeing that IPstream customers are aggregated across the UK to a single point, a lot of ISPs will be thinking of the need to order extra capacity. The BBC also offers a P2P download which is of higher quality than the streaming. We managed to download the 500Mb file in just over 20 minutes at an average speed of 3.5Mbit/sec. The total traffic (including overhead) for the streaming was 231MB and for the P2P delivery was 544Mb.

Full unbundling still leaves ISPs at the mercy of backhaul costs

The story for facility-based LLU players, which account for another 3.7m UK broadband customers, is slightly different as it depends completely on network design and distribution of the base across the exchanges. Telco 2.0 market intelligence says that some unbundlers have ordered 1-gig links for the backhaul and should be unaffected least in the short term. However, some unbundlers have only ordered 100-meg links and could be in deep trouble with peak hour people really noticing the difference in experience. The only real option for these unbundlers is to order extra capacity on their backhaul links which could be extremely expensive. The average speed for someone just browsing and doing emails is quite low compared to someone sat back watching videos stream.

Cable companies understand sending telly over wires

The story for Virgin Media, which is the main UK cable operator with 3.3m broadband subscribers, is again is dependent on network design. This time it depends upon the load on the UBR within the network segment. Virgin Media have a special angle to this as the iPlayer will be coming to their Video-on-Demand service in the spring, and therefore we assume this will take a lot of load off their IP network. The Virgin VoD service runs on dedicated bandwidth within their network and allows for the content to be watched on TV rather than PC. A big bonus for the Virgin Media subscribers.

Modelling the cost impact

For both cable and LLU players the cost profile is radically different to IPstream players, and it is not a trivial task to calculate the impact. However, we can extrapolate the Plusnet traffic figures to note the effect in volumes of data.

We have modelled four scenarios: usage the same as in Jan 2008 (i.e. an average of 19min/month/user) rising to 1 hour/month, 1 hour/week and 1 hour/day. These would give an increase in cost of £1,035k/month, £3,243k/month, £14,053k/month and £98,638k/month respectively for the IPstream industry, only based upon Plusnet cost assumptions. Of course this is assuming the IPstream base stays the same (and they don’t just all go bust straight away!). Across the whole of the UK ISP industry, the increase in traffic (Gb/month) is 1,166, 3,655, 15,837 and 111,161 respectively. That’s a lot of data.

The obvious conclusion is that ISP pricing will need to be raised and extra capacity will needed to be added. The data reinforces our belief expressed in our recent Broadband Report that “Video will kill the ISP star”. The problem with the current ISP model is it is like an all you can eat buffet, where one in ten customers eats all the food, one in a hundred takes his chair home too, and one in a thousand unscrews all the fixtures and fittings and loads them into a van as well.

A trigger for industry structural change?

An interesting corollary to the increase in costs for the ISPs is that we believe that the iPlayer will actually speed up consolidation across the industry and make the life of smaller ISPs even more difficult than it is today.

Additionally because of the high bandwidth needs of the iPlayer, the long copper lengths in rural England and the lack of cable or LLU competition to the IPstream product, we believe that the iPlayer will increase the digital divide between rural and suburban UK.

The iPlayer also poses an interesting question for the legion of UK small businesses who rely on broadband and yet don’t have a full set of telecommunications skills. What do they do about the employee who wants to eat their lunch at their desk whilst simultaneously watching last nights episode of top soap EastEnders?

Time to stop the game of ‘pass the distribution cost parcel’

The BBC is actually in quite a difficult situation, especially as publicity starts to mount over the coming months with users breaking their bandwidth limits and more or more start to get charged for overages. The UK licence payers expect they paid for both content and distribution when they handed over £133.50.

In 2006/7, the BBC paid £99.7m for distributing its broadcast TV signal, £42.6m for its radio signal and only £8.8m for its online content. This is out of a total of £3.2bn licence fee income. I would suggest that the easiest way for the BBC to escape the iPlayer conundrum is for them to pay an equitable fee to the ISPs for distributing their content and the ISP plan comes with unlimited BBC content, possibly with a small retail mark-up.

The alternative of traffic-shaping your users to death doesn’t seem like a great way of creating high customer satisfaction.

The old media saying sums up the situation quite nicely:

“If content is King, then distribution is King Kong”

[Ed - to participate in the debate on sustainable business models in the telecoms-media-tech space, do come to the Telco 2.0 ‘Executive Brainstorm’ on 16-17 April in London.]

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February 18, 2008

Telco 2.0’s Private Mobile World Congress

So everyone else has done their 3GSM…sorry…Mobile World Congress round-up posts; what did Telco 2.0 think was cool? As you’ll no doubt guess, it wasn’t the shiny gadgets that got us; even at MWC, the anti-shiny goggles all Telco 2.0 team members get issued still block them out. It was a very serious conference this year; we think it may have been the first to get serious about the kinds of communication and enterprise-focused activities that will eventually make serious money for carriers. We broke them down by themes…

Radio Networks

Not a frequent Telco 2.0 topic, but it’s worth pointing out a few things. For a start, WiMAX is doing a roaring trade - 2007 was a year of delivery. And there seems to be a lot of potential in the HSPA air interface; Telstra was talking about pushing their downlink speeds towards 40MBits/s. Similarly, the network architecture is already flattening out, rather than waiting for the LTE Systems Architecture Evolution group to report; Nokia Siemens Networks’ “Internet HSPA” relies on a new radio-network controller to break out IP traffic very close to the user. In a sense, this turns the whole telco into a provider of authentication and billing to the users of its IP connectivity.

Another alternative technology, UMTS-TDD, has had some very good news. Its main proponent, IPWireless, has been pushing it for many years; after their anchor deployment, the planned roll-out of 8,500 Node Bs with IPMobile in Japan, went sour when IPMobile couldn’t finance the job, the company was forced to merge with NextWave. But now, they’re roaring back; one of their key capabilities is that they have about the only sensible technology for mobile TV we’re aware of, and it’s being deployed in the UK under a sharing deal between Orange and T-Mobile UK. Telco 2.0 saw the test results last year; they were more than convincing.

Part of the Telco 2.0 vision is that being a digital logistics company involves multiple ways of bringing bits to the customer, and broadcast should certainly be part of the toolbox. NextWave’s technology has the huge advantage of needing no new radioplanning and having a standard interface to the operator’s core network. (They are also doing some very cool things for emergency service comms.)

Femtocells were another big theme, and oddly enough an emerging British speciality. Both Ubiquisys and ip.access were much in fashion; just wait for the first vendor to build a femtocell into a full-featured set-top box/media centre/router/slingbox product. We give it about three months.

Geography: a Killer App

Telco 2.0 doesn’t believe in the killer app; but we love killer apps. It’s increasingly clear that geographical services (not quite the same thing as location-based services) are going to be just that. And Nokia appears to have been working very hard on the new version of its Nokia Maps; Nokia Maps 2.0 looks like a cracking product, but it’s not just that. They’re keen on three-dimensional mapping and orientation, moving from a model of navigation appropriate to cars (“turn left at the traffic lights, and continue for 300 yards; then turn right and join the A308”) to one appropriate to pedestrians and an urban environment. They’re also keen on user-generated content; mapping blogs, wikis, forums, RSS feeds, and social networks onto the fabric of the city.

Here’s the distinction between geographical and location-based services; LBS is typically about locating mobile users or objects in space and reporting their whereabouts to some sort of central service, then pushing information out to them. Geographical services, by contrast, are more about mapping information from virtual space into real space and more about applications than networks - the end-user pulls information from online sources and has it displayed in geographical context.

Yahoo!’s new OneConnect mobile unified-comms app points up some of the tensions here; it essentially scrapes all your friends’ activity from several social-network sites and displays it on a map. Further, you can get updates when people you know are nearby, and integrate the whole thing with your e-mail, address book, and the like. Obviously there are privacy issues, but more seriously, will it be a geographical service or a location service? The only business model that sounds likely would be ad-funded, which suggests that Yahoo! wants it to be location-driven; and that’s going to make the privacy issues even more important.

Google is mad keen on integrating sociability with location, too. As Michael Halbherr of Nokia’s LBS operation said, people love maps and play with them even if they aren’t going anywhere. No wonder Nokia’s started integrating GPS in absolutely all their new products; not just N- and E-phones, but two new mass market gadgets as well. Telcos: get your location API out there before everyone gets a GPS phone. Or lose it.


The barriers between technologies and businesses are breaking down. The techblogger hype was all about Google Android, but you’d have struggled to find Googlers at the show; but the mobile Linux business is surging and doing some very interesting things. Indian software house Azingo is the first to get a LiMo Foundation-compliant Linux system running, on a Broadcom reference handset; but the really interesting bit is that they have got a set of Nokia S60 widgets to run on the Linux gadget.

The much better-known Access, meanwhile, has developed a virtual machine for its Linux platform that allows Palm OS applications to run on their system; that means that the original PalmOS is a goner. It looks like we won’t have an operating system lock-in on mobile, even if MS PowerPoint still won’t render .ppt files produced by OpenOffice properly. In a related, if not exactly identical, development, Sony Ericsson - usually a Symbian UIQ shop - announced its first Windows Mobile device.

At a much higher level, the conference saw more CDMA carriers signing on to the 3GPP technology evolution path, suggesting that the wars of religion in radio networking are coming to a close. Permeability is a key concept for Telco 2.0 - the platform is all about replacing the hard cell wall around the telco with a membrane that lets information leave and money enter; and the place to go for that was the IBM stand.

IBM brought an impressive collection of telecoms-related demo projects to MWC, like a brass band conducted by senior tech Zygmunt Lozinski. The shiny gadget was their integration of live video from the real world into Second Life; the video feeds being displayed on giant “screens” in the virtual environment. In a postmodernist touch, the video camera was trained on Lozinski himself demonstrating the application on a giant screen. But there were much cooler things.

Business Finder is a geographical application which mashes up telco location and presence data with a business search engine; it’s almost uncannily like one of the case studies we prepared for our 2-Sided Business Model report. The data comes from an IMS core network, but we’re willing to forgive them that, as it’s a glowing example of the full opportunities telco platforms can provide. IBM also showed a simplified management interface - a sort of business IDE - for telco mashups using their WebSphere servers and Rational service-creation environment.

Qualcomm and HP, meanwhile, nailed two of our key themes with the announcement of the Gobi chipset, which offers both a selection of radio air interfaces (even that lock-in is going) and also integrated GPS for those crucial location-based and geographical services. Watch’em differentiate and disintermediate in ‘08.

Identity, Authentication, Payments

Telefonica and Turkcell are both deploying a fascinating new service, Mobile Signature, which uses a cryptographic ID stored on the SIM card to offer two-factor authentication for the Web. Basically, you provide a user number when you need to prove your identity to a third party; they call the telco’s ID API, which sends a WAP PUSH message to your phone. It knows it’s your phone because it authenticates against the crypto key on the SIM card. You verify the challenge, and you’re done as they say at Amazon.

Turkcell is pricing it at one SMS=one lookup; this seems a little steep when some websites are made up of dozens of AJAX function calls.

At the Mobile Money seminar, meanwhile, it was very clear that Orange has a clue about mobile payments. They are starting major projects in Egypt, Jordan, Cote d’Ivoire, and Senegal this year, with an international remittance service to follow. Mung Ki-Woo, VP of Payments, described what amounts to a standard operating procedure for rolling out payments; you have to address the cash economy in these societies, where mobile phones can outnumber bank accounts by a factor of eight.

The key to this is the ability to get cash back out and pay bills; Orange’s answer is to partner with a bank at one end (which takes care of the horribly complicated regulatory issues around banking) and its own network of airtime vendors at the other. Customer balances are rolled up into one lump of cash held at the bank. The bank also gets to handle the inevitable corner cases, such as what happens when a customer dies with a balance outstanding. Orange reckons that the business is 55% business-consumer, 35% business-to-business, and the remaining 10% is accounted for by interest paid by the bank on the subscriber balances.

Talking to machines

“We’re reaching saturation point in terms of our human customers”; so said Paolo Paganucci of TIM. The answer? Give robots mobile phones. Seriously. Machine-to-machine communications looks like it’s going to be a major theme in the next few years; as it deals with things like tracking containers, monitoring production processes, and managing down pollution and the waste of energy, it’s very Telco 2.0 indeed.

n a sense, it’s the opposite of the geographical services we mentioned; the real LBS is for machines and organisations, rather than people and communities. Paganucci described its role as interworking between real and virtual space; just like Nokia Maps 2.0, but from the opposite perspective. TIM is working on a SIM card that includes a ZigBee radio, so mobile devices can interact with embedded device networks and link them to applications on the Web or running in the carrier’s SDP.

The opportunity is large; Italy alone has 2.5 million cars and 30 million electricity meters. So are the problems; embedded devices are embedded in things that last many years longer than a mobile phone, such as cars, buildings, and machine-tools, so they must be future-proof. Further, the reason for using embedded devices is often that the object they are embedded in is somewhere dangerous, remote, or inaccessible. If your device is embedded in an offshore wind turbine, you better be able to update the firmware over the air; and the device will need to be able to detect a problem with the update and rollback without using the network.

Finally, the Core Network Geekout

Yes, it’s tragic, but we love core networks here at Telco 2.0. We were very impressed by Tekelec’s SCIM, which looks like just the thing for a telco applications platform; it stands between applications servers and the core network itself, chatting a variety of telco protocols at one end and IT ones at the other. And they claim it works in hybrid SS7/IP, IMS, and IETF SIP environments too.

Note that our Top 10 vendors will be demo’ing their products in the Innovation Zone at the Telco 2.0 event in April.

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Ring! Ring! Hot News, 18th February 2008

In Today’s News: Sony brings the embedded voice; Amazon Web Services loses it; BlackBerry down; Vodafone claims it has the solution; AMPS finally shuts down; T-Mobile USA turns up 3G, eyes overseas expansion; GSM-CDMA phones; Airwave - still deploying, increasingly obsolete; why do they all want Yahoo!?; Google goes quiet; LiMo, Symbian, SE handsets blitz; Telecom Italia goes for separation; Nokia puts hard word on Google; price war rages in Bangladesh; dancing acronyms; Viviane Reding upstages Isabella Rosselini

Our Broadband Business Models survey suggested that the next ten years will see a surge in non-telco voice and messaging, embedded in other products like games consoles and indeed games. Sony have had an accidental disclosure that shows they’re working on just that. A new version of the PlayStation 3 will have an entry on one of its menus for “Friends and Messaging”. It’s coming, like it or not. (Need a new voice and messaging business model? We can help!).

It was a week of outages: Amazon Web Services’s S3 Simple Storage Service went down hard after they lost connectivity to one of three data centres. Reliability is a frequent criticism of Internet-based services, but the telcos have nothing to boast about either. This week saw a mammoth BlackBerry outage across North America, the second this year. Vodafone UK responded with a new service that promises BlackBerry service that will never go down. Never. Ever. Although we have a sneaky feeling you should read the small print.

Perhaps all the engineers were at Mobile World Congress? It certainly seemed that way. If you’re still a US analogue cellular user, though, you need more than engineers; the AMPS network is finally shutting down this week. The good news is that T-Mobile USA flipped on their UMTS net this week, meaning the US now has four mobile broadband networks out and competing. Despite that, they still look like a company with a huge and ill-advised acquisition in their future. Still, we can hope that someday there will be a network that is both fast and works everywhere.

Sprint announced its first GSM phone - in fact, a CDMA-GSM roamer. This permeability of technologies and businesses was a major theme at MWC, and you’ll hear more about it in future blog posts. Possibly the most important technical skill going forwards is the ability to blend multiple network and delivery technologies to solve the problem the customer actually has.

British taxmen and customs agents are the latest emergency services to get TETRA Airwave. It’s just a pity it’s taken so long to agree on this, that you can now get emergency service networks that are high-speed all-IP with QoS and location awareness. (Check out our MWC post for more.)

In the Microsoft-Yahoo case, meanwhile, Rupert Murdoch and Google have both indicated their interest. It looks like most of Yahoo!’s own services will vanish, with the brand remaining over the doors of Windows Live. We’d just like to know what’s so great about Yahoo! anyway? Its competitive advantage is in the least interesting form of online advertising. Its web apps are unexciting even compared to Microsoft’s, and the pipeline of new ones just shut down. And its search isn’t, well, Google.

Perhaps it’s their new mobile unified-comms application? Looks interesting, even though there are some pretty serious privacy issues involved. But neither MS or Yahoo! has the kind of dynamic ad capability that Google does; which makes you wonder how it’s meant to make money.

MWC saw a very low-key launch of Google’s Android; you had to look hard to spot any Googlers at the show. Symbian hit back, suggesting that the real problem will be whether Google actually supports the product — they aren’t well-known for it. The LiMo Foundation, however, had a whole swath of gadgets, 18 of them. Sony Ericsson, however, surprised everyone by launching a Windows Mobile gadget. There’s money in them enterprises…

Telecom Italia has been talking structural separation for a while; now it’s happening, and it’s going to be called Open Access. I wonder where they got that idea from? Ironically, the pioneers of separation at BT have just got the EU’s go-ahead to make Openreach a tad less…open.

Nokia, meanwhile, is targeting Google with a cocktail of shiny gadgets, plus (recent acquisition) Trolltech’s clued-up Linux offerings, and Nokia’s own Ovi web services platform. The un-demarcated frontier between the mobile telecoms business, the consumer electronics business, and the Web/Big IT world is getting more and more crowded. No wonder! GrameenPhone of Bangladesh is the latest operator to see the essential telco syndrome of surging revenues and slumping profits. If sales are surging and profits tanking, prices must be falling — 40% in this case.

We wouldn’t be surprised if even they are being disintermediated by ‘over the top’ voice and messaging applications. Back in 2005, when they flipped on EDGE on their network, 100,000 people signed up for the upgrade in the first week.

Meanwhile, it was all radio-network politics this past week. Verizon, AT&T, Vodafone, and China Mobile have all signed up to LTE, the GSM world’s plan for 4G. GSMA officials were very keen to extend a welcoming hand to the CDMA community at the significantly-renamed Mobile World Congress (formerly 3GSM). The WiMAXers, though, seem to be doing a roaring trade, and there is a further threat to the LTE vision, namely its own predecessor, HSPA. Basically, the radio guys keep squeezing more out of the HSPA air interface. Telstra, already a leader in HSPA with the unique 850MHz HSPA Class 8 network Ericsson built them, is talking about pushing the peak downlink speed towards 40MBits/s in the next few years. It is no longer a deal-breaker for equipment manufacturers to offer a ‘Nethead’ network architecture (decentralised, all-IP, little QoS) rather than the traditional ‘Bellheaded’ (centralised, circuit-based, telephony-centric) one. For example, Nokia Siemens Networks, among others, is offering a version of HSPA which breaks out IP traffic as low down as the cell-site. What that means is all your IP media stream goes straight out to the Internet, rather than hauling it back to the switch. It’s roughly what the LTE Systems Architecture Evolution group wanted, but early, and cheaper.

And finally, EU Commissioner Viviane Reding still scares the hell out of industry suits. The week before, she demanded cheaper data roaming; last week, she took part in a GSMA press conference where the press unsurprisingly wanted to know about just that. The GSMA naturally didn’t want any such uncivil talk at its annual jamboree. So she walked out, taking the gaggle of journos with her, to give an impromptu press conference. Wow. Even the GSMA’s guest of honour, actress and model Isabella Rosselini, couldn’t match that.

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How ‘Airline 2.0’ generates more free cash - Lessons for Telcos

Our next Telco 2.0 event is coming up in April, and is sub-titled “Is there $250bn in new 2-sided telecoms business models?”. As with all marketing, sometimes accuracy is an early victim at the altar of the gods of simplicity and clarity of the message. A more correct title would be “Is there $250bn in new platform-enabled rich wholesale models that allow telco assets and services to be re-packaged to reach new indirect retail distribution channels, as well as generate entirely new revenue streams from upstream partners, where some of these propositions also fall under the technical definition of ‘2-sided business models’”.

Somehow I don’t think we’d get the same interest and attendance. Our graphic designer would be less than amused too. The point, though, is that there are many flavours and shades of grey in business model design. We’ve been coming up with a long list of examples (more in our new report), and would like to pick two involving the airline industry to illustrate the range of possibilities.

A true two-sided model: airline miles

It’s quite common in business to sub-divide a product and sell it at a higher margin in smaller quantities. A sachet of shampoo bought at the swimming pool costs a lot more per head of clean hair than a bottle bought in the supermarket. Airlines have found a clever way to master this principle.

As it happens, I’m typing this sat on a plane home from Mobile World Congress. The seat is a nice blue leather, and the arms appear firmly affixed. If I started to try to take the seat apart, the consequences would start with consternation from my fellow passengers, and rapidly descend into what I think the crew described as being “met by the appropriate authorities on arrival” when they told us not to get pissed or light up in the bogs. So an airline seat is a pretty indivisible thing.

Airlines don’t sell seats. They sell transport from A to B (or in my case, B to E). That is achieved by selling tickets. A ticket is an “option to fly”. Nobody makes me turn up at the airport at all. Subject to conditions of the ticket, I can choose to fly at another time. So tickets are then associated with a reservation, which matches the “option to fly” with a specific scheduled flight, which maps to a particular set of blue leather seats.
Airline seats are indivisible, but airline tickets are not. You can sub-divide one into, say, 25,000 pieces. Let’s call each piece a “flyer mile”. And then you can sell these to banks, supermarkets, hotels, credit card companies, and assorted other merchants.

The miles are sold at wholesale, but it’s not a wholesale business in totality. That’s more like someone who wet leases planes to charter airlines. No, in this case the miles have value to the upstream (wholesale) partner precisely because you have a (retail) relationship with the flying customer and have given them a frequent flyer account. This is a true two-sided business model.

A different kind of wholesale business

Most wholesale businesses are associated with squeezing some last cashflows out of mature products ending their lifecycle. In the airline business, it’s bunches of old Boeing 727s converted to freighters chugging around the third world on charter hauling everything from artichoke spears to arms. In telecoms, it’s MVNOs mining out the last hard-to-reach segments. The host who provides the capital equipment for the wholesale business sees this as a low-margin alternative to having your own retail business.

These are “bulk” one-sided wholesale business models. There is a range of possible models that take us towards the full “two-sided” model. These can be far more profitable than a standard retail business. For instance, those airline miles can only be redeemed on certain flights, meaning the cost of each exercised “option to fly” is low, since you never need to invest in additional capacity. Contrast this with when businessfolk turn up on Friday every week for the last flight waving their ‘Y’ class full-fare economy tickets. Users will perform all kinds of contortions and self-deceptions to convince themselves that this non-fungible airline currency is somehow of great value. (The head of Ryanair once quipped that his German customers would crawl over broken glass to get low fares, so just imagine what a “free” flight does to the psyche.) Indeed, customers ignore the huge switching costs that frequent flyer miles create, and the misalignment of incentives between the employer who pays and the employee who saves. And on top of all that, you get a massive float to work with, reflecting the period between the sale of the mile, and it’s possible redemption.

In a way it’s the flip-side of lean production. With lean, you reduce work-in-progress and inventory costs to free up money to improve cashflow. Here we create “revenue in progress” instead; if you can’t sell a whole ticket, sell a fraction of one.

How much?

Frequent flyer programs earn over $2 billion a year for airlines from partners at outrageous margins. According to WebFlyer, the fastest growing segment of these programs are “mileage consumers” and not frequent flyers, with about 54% of miles earned from non-flying activities. About 18% of miles issued are never redeemed. With around 10 trillion million miles outstanding, at an average revenue of 1.7 cents, that’s $17bn of operating cash airlines haven’t had to raise from the markets.

More revenue, lower costs, higher cash flow, less churn. What is there not to like?

In our next post on airlines and telcos, we’ll examine how these principles could be applied to our industry.

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February 12, 2008

Microsoft-Yahoo: What does it mean for telcos?

There’s been no shortage of analysis of what Microsoft’s proposed takeover of Yahoo means for the participants themselves or the technology industry at large. Indeed, the markets are speaking and suggest deep misgivings about the whole venture. Nonetheless, what’s been lacking so far is deep analysis of what the deal could mean for telcos.

The questions are intriguingly simple, even if the answers are not:

  • Are they in our business, and are we in theirs? In what ways are Microsoft and Yahoo in competition with telcos, and vice-versa?
  • Does a consolidation among portal/IM partners have a strategic impact?
  • Are there new opportunities to collaborate and gain mutual benefit from the combined forces?

To end the suspense, our overall conclusion is that the deal has little impact, either as a threat or opportunity. The reasons, however, may not always be the ones you expect.

Microsoft-Yahoo: a potential competitor, or customer?

Many fixed and mobile operators have deals with Microsoft and Yahoo for consumer portals, and VoIP and IM clients. In principle these rival services can threaten operator revenue streams for voice, messaging and value-added services like ringtones. Our verdict: negligible impact. “Over the top” voice and IM are always threats, but Microsoft and Yahoo have far more interest in sustaining the status quo and finding ways of participating in the vast flows of cash from voice and SMS. As we wrote earlier, the real threat would come not from a “minute stealer” arbitraging voice and messaging revenues, but from someone who fundamentally re-thinks how users and merchants interact. There’s little danger of Microsoft or Yahoo launching the ultimate replacement for the freephone number, or launching “free voice” to give away some other high-margin service.

Secondly, operators are tentatively getting into advertising, but are unsure what their role is or what the market opportunity really looks like. Ed - All covered in detail in our report on Telcos’ Role in the Advertising Value Chain. If anything, the merger is good news as a provides a viable partner to negotiate with in opposition to Google.

Plus, we feel telcos are missing the big picture here. Advertising is only one small slice in the digital economy value system. In turn it’s a part of a bigger revenue pool of marketing services, which is part of a set of business processes that run all the way from brand awareness to order fulfilment to payments to support. The job of the telco is to find ways to use its assets to support these general business processes. So rather than “how can I compete with Yahoo or VISA for adverts or payments”, ask how you can become a supplier to those entities based on the knowledge and access you have to your own customers. It’s more about helping the UPS man to deliver the parcel at a time when you’re home, than stimulating demand for the thing you bought in the first place.

Thirdly, telcos are making baby steps towards being media companies, and offering suites of entertainment — music, mobile TV, and IPTV. We don’t think this will work out long-term in most markets. Media companies are finding it hard enough to stay afloat as is, without telcos piling in with naive expectations that content acquisition, aggregation, recommendation and distribution will all just fall into place.

Just as the vertically integrated early Web portals from AOL and Compuserve were un-picked, the same will happen here with “telly portals”. Someone who isn’t a telco will have a smash-hit way of blending video, interactivity and social networking. The job of the telco is then to be a logistics solutions provider in helping that application be realised. Give them access to the set-top-box user interface; allow third parties to access your content caches; and work out how to dynamically use the broadcast system to send the most in-demand content in real time, squeezing the rest down the broadband pipe.

If the media company with the great idea turns out to be Yahoo, so be it. But it doesn’t change the telco’s role of being a trucker for digital freight. If anything, the combination of online properties, the PC and the games console make the combined company a great prospective client for offering such services.

Lastly, Microsoft makes its money from enterprises, and is a key partner for operators with a large enterprise user base, or an IT integration/professional services arm. It’s important not to upset this relationship. To it’s credit, Microsoft has generally been very adept at maintaining a neutral position with respect to all the users of its technology. The Yahoo deal is unlikely to change that, and as Yahoo doesn’t have a significant enterprise business, the deal has no significant impact on the enterprise channel for telcos.

Animal, mineral, vegetable — three different kinds of company

Let’s dig a little deeper and see why these businesses and complementary to telcos, rather than competing.

If often feels in the Telecoms-Media-Technology sector that there likewise three tribes who have little common mutual understanding, even if they are mutually interdependent. Nobody seems to understand all three of the emotive needs of users, the possibilities of technology, and how to monetise the gap between the two. Google, Microsoft and Yahoo are three very different companies with different DNA.

Google processes information. You enter a search term, they match it to web pages and adverts. They know or care little about what the data itself means. People are important to Google only to the extent that they seem to provide an endless supply of search terms and text to work algorithmic magic with.

Yahoo is (on a good day) a media company with the cream of the Web 1.0 community services. They understand how to bring together groups of like-minded people using professional and amateur content as bait. Unlike Microsoft and Google, they’ve not been so hot at making money from the result.

Microsoft is a technology arms vendor. They’d much prefer not to have to deal with end users at all directly, especially these messy online services and (worst of all) customer support or billing. Outsourcing that stuff to touchy-feely Yahoo probably feels like a big relief.

All three of these are involved in building complex online communications tools, ones which all too often confuse superficial usability with underlying utility.

What business are we in?

Telcos, if anything, have a lot more in common with Facebook or MySpace. These are presence-based services. By that, we mean the goal of Facebook is to give you a sense of the other person, as if they were there present with you. When you smell someone’s well-worn favourite sweater, you get an indelible sense of who they are. Whatever the digital online version of that is, well that’s what social networking sites do. You get the distillate of someone else’s life. It’s emotive, sensuous. Visceral, even, when it works.

That’s what talk and text are about too. Over 80% of global telecoms revenue continues to come from those two products. The most valuable message in the world remains “I love you”. Social chatter is the bedrock of telecoms revenue. We’d like to pretend it’s all businesslike, purposeful stuff. It’s not.

This works best when telcos offer super-simple, ubiquitous services. The job of telcos is to embed communications, particularly social chatter, into every possible context. It’s not to think up thousands of new features and complex applications.

This gives us some clues where Microsoft, Yahoo and Google abut up against the telco business model. Where a phone call or text is about information transfer, you need to be afraid of Google. Dictating your name and address to a call centre agent is not efficient or pleasant. It’s muda — waste to be eliminated from our lean communications system. Likewise all those phone calls that do manual transfers of presence and location data — “I’m on the train”, “Nearly there, see you in five minutes”. Google have already started to eat away the the telco information services business with their free 1-800-411-GOOG directory service.

On the other hand, telcos should be urgently opening up their voice and messaging platforms to outside innovation to keep them relevant. How can you re-package up your voice minutes with Yahoo’s dating application? How can a date send you a voicemail without knowing your cell number, but only your Yahoo ID? None of these companies have a viable alternative to telco voice and SMS, so you’ve a lot more to gain by integration with them than you’re likely to lose through substitution.

In other words, if the online giants are competitors, you’ve got the wrong business model. They should be customers.

A deal driven by fear

The subtext of the whole merger can be explained by the monster lurking in the background: Google.

Umair Haque notes how the genes of Microsoft and Yahoo appear to have what might be called “dinosaur DNA”. They’re both built for a mass-production era. You buy Windows, I buy Windows, but Microsoft doesn’t know or care what we do with it. Google is different. They do care. A Google OS would carefully watch everything you do. Each piece of data is valuable. Every use choice and action is a potential sign of intent. Every intent can is correctly identified be matched to a piece of marketing from somewhere.

Google understand the value of data, and aggregating millions of pieces of data to create new value.

Google is also internally organised in a fundamentally different way. They aren’t a top-down driven company with twelve-month budget cycles that determine the product plans for the next year. Google’s internal economy matches the Silicon Valley outside. Projects continually compete against each other for people. Employees have significant autonomy over where they work. Google tolerates a “fail early and often, but particularly early” culture.

So another reason to be unconcerned is that Microsoft and Yahoo are two companies destined to address a lot of the wrong problems, and do it in the wrong way. Google remains a threat because they’re ultimately willing to give away some core telco products to gather eyeballs and user data. Even if only nibble at the edge of the telco market, it could bring unwelcome pricing pressure.

Yet Google remains weak in knowing much about where you live, travel, who you interact with, and what kind of person you are. Telcos are rich in this data. The conclusion again is that there’s scope to trade for mutual benefit. The theme over and over remains: view the portal players as customers, not competitors, for your communications platform services.

Finally, you could probably do a lot worse than take Netscape founder Marc Andreessen’s advice to ignore the noise in the corner between fighting advertising aggregators, and just get on with building your own valuable company.

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February 11, 2008

Ring! Ring! Hot News, 11th February 2008

Telco 2.0 comes to you from the Mobile World Congress … sorry … 3GSM this week; not only were we covering the news but we were part of it, but that’s another story.

A big theme in the news this week was mobile Linux; Orange joined the LiMo Foundation, the outfit Motorola ginned up to boost open-source operating systems on shiny gadgets. Azingo, an Indian software house that markets a LiMo-compliant Linux distribution and developer kit, was showing off some of the unexpected capabilities of the technology.

Specifically, using a Broadcom reference gadget running their system, they were successfully using Nokia S60 widgets on a device that was neither a Nokia nor a Symbian S60 platform; we’re not sure if this is fantastic or scary. Which one depends whether you work in the S60 or Maemo Linux groups at Nokia, presumably.

Across the way, Access’s mobile Linux was attracting a lot of attention; after all, the reason why Orange is joining LiMo is that they are on the point of launching an Access-powered device. While Azingo was running Nokia widgets on their Linux, Access has created a virtual machine in theirs that lets you run all your old PalmOS stuff next to both Eclipse Java apps and native C. Which suggests they can probably run S60 apps, too.

All these developments suggest Linux is taking large steps towards spreading into mass market handsets. Together with Google’s Android, the future is inching towards open mobile platforms that can embrace, extend and extinguish proprietary rivals.

Just to add spice to it, Nokia was giving away devices with mobile Linux operating systems; we won’t say which Telco 2.0 team member and master tech-blagger snagged the swag. But we will say that Telefonica and IBM get ‘open’; the Spanish incumbent was showing off a fascinating new suite of services for enterprises, including a mobile identification/authentication service with…yes…a Web services API, out-of-band authentication by WAP PUSH message, and cryptographic security based on the SIM card. “Mobile Signature” uses an arbitrary user ID, so it could be used to authenticate almost anything, including multiple anonymous aliases.

Then there’s “Mundo Maquina”, their formidable machine-to-machine platform for doing things like monitoring the movement of shipments; taking the two together, Telefonica looks like it’s making a dead-set at at least two of the key horizontal platform capabilities we identified for the 2-Sided Business Model.

We won’t say, however, which super-vendor’s stand included this not-so-impressive feature on “Enabling Business Mobility”


Perhaps they could do with some Telco 2.0 consulting?

The importance of finding a new business model has never been clearer; EU Commissioner Viviane Reding used the conference to blast roaming charges again, saying they should be only “marginally” greater than home rates. The BlackBerrying operator delegates shuddered a hearty amen to that one, before losing sleep over their sick cash cow.

IBM Research, meanwhile, demonstrated an application using telco location data and Web services to link delegates and taxis; it bore an astonishing likeness to some of the case studies we’ve prepared for the 2-Sided Platforms report, to say the least. They’re using IMS, but the system isn’t IMS-specific; they’re also pouring resources into SDPs, a core Telco 2.0 technology.

GSMA boss Craig Ehrlich was talking hands across the water with the CDMA world; more realistically, Verizon appears to be the latest carrier to sign up to LTE. Well, everyone always says boxing was better before all the alphabet soup governing bodies appeared. Perhaps the CEOs of Qualcomm and Ericsson could duke it out in a unification bout for the title of undisputed heavyweight champion of the world? While we’re talking radio networks, Orange and T-Mobile UK announced the launch of their mobile-TV service using NextWave’s UMTS-TDD system. This will need watching closely.

Back in the mundane world of gadgets, the differences between Nokia and Motorola’s performance were painfully obvious this week; Nokia brought a whole welter of new shiny toys onto the market this week, whereas Moto’s new products actually included a phone with a monochrome screen; Nokia is now putting GPS and Nokia Maps 2.0 (which looks cracking) into its low-end phones. See the difference?

And finally, after masses of conspiracy ravings about last week’s Middle Eastern anchor-fade incident, FLAG’s cableship reached the site of the FALCON cut and discovered….a six-tonne ship’s anchor at the scene of the crime. Now there’s a surprise; either that or the squid are smarter than we thought.

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February 8, 2008

Free* Telco 2.0 Research

A number of people have approached us asking if we could make any ‘special offers’ around our new research and big April event. Since the telecoms industry is only worth $2 trillion, and our analysis describes a growth opportunity of a mere $250bn, it seems only fair to offer some thrifty options:

First up, a free slidehow summarising our recent analysis. Then below that some offers to tempt you or colleagues to access our services.

Special offers - Telco 2.0 Event, 16-17 April, London
- 20% discount for bookings made before 15 February here
- Send a delegation and get additional discounts for group/team bookings.
- If your an alumnus of our events, we have an additional offer. Contact us here.
- Free* new research reports for all event participants. Choose one from:
* Future Broadband Business Models - Winning/losing strategies for service providers
* The “Two-Sided” Platform - Sizing the new commercial opportunity
* Voice & Messaging 2.0 - How to sustain and protect core revenues
* Telcos in Advertising - The best strategic approach for entering the marketing value chain
* Request an event brochure here contact@telco2.net; Sponsorship Opportunities here; Full details of offers here

[We wouldn’t be in the telecoms industry if we didn’t have a * for our ‘free’ offer. Here it is: * Choice of one report. Single User License for all participants at the event.]

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February 5, 2008

Re-thinking Skype’s business model

Skype is rumoured to be for sale by eBay. At least they’ll waive their own listing fees when it goes for auction. We do hope the buyer pays up and one golden-edged Skype share certificate duly arrives in a padded envelope. It doesn’t really matter if the rumour is true, because Skype has clearly failed to shine as brightly as it potentially could have under eBay’s stewardship. That’s because it’s got a business model that is tied into the past. And the greatest irony is that eBay itself is a closer model to what Skype needs to be than almost any other company.

We’re going to draw together some key messages from three of our recent and forthcoming reports to demonstrate what’s wrong and how to fix it:

  • In the Voice & Messaging 2.0 report, we examine how there are different kinds of communication, even within a single phone call, and they provide different opportunities to re-think the user experience. Skype bolted a VoIP and IM client together in uneasy alliance, rather than creating a truly new experience that solved a problem others couldn’t solve.
  • In our Broadband Business Models 2.0 report, we look at how different distribution systems for digital goods compete. In particular, you have to play to the special affordances and capabilities of the system, in Skype’s case the Internet. Skype didn’t go far enough.
  • In our report on The 2-Sided Telecoms Market Opportunity, we look at how you can create “platform” businesses. Skype hasn’t really become one, and should.

Skype’s one-sided business model

First, let’s examine Skype’s business model as is today. Skype primarily makes money by selling minutes to users. It’s suspiciously like a telco. They also make licensing revenue from brand partners, such as mobile operator 3 in the UK, or devices from Logitech, or a number of plug-in services they co-market. Furthermore, Skype has a premium service where you can call other Skype users (without using the PSTN or its billing and settlement systems).

So let’s recap: Skype is making money from the users themselves, by selling metered telephony, and using the free VoIP as bait. The Internet is being primarily used to avoid the PSTN. There’s no revenue attached to the other IP-enabled parts of the Skype client, such as IM, your presence status, and “mood message”. There’s no such thing as an enterprise or merchant version of Skype — all Skype IDs are born equal. (There are some products that let Skype act as a virtual call centre, but they don’t create a new class of functionality). They have a small sideline in making money from “upstream” partners.

The challenge is to create a model where the money isn’t coming from the minutes. To do so you need to invert Skype’s business model. The money has to come from merchants who want to interact with the users. The users have to be attracted by a combination of cheapness, ease of use, and some convenience that they can’t get elsewhere. And the merchants have to be attracted because they can interact with the users in some way that they can’t find elsewhere.

First, find a problem to fix

So that takes up back to our opening thoughts. In what way is telephony broken that Skype could have fixed? Well, one think it does well is enables social chat between users. To the extent that cost was preventing social chat, Skype solved that problem. (Subject to buying a fast new PC and getting a broadband connection.) Unfortunately, only select international and mobile calling remains expensive, as most users find themselves offered unlimited cheap landline telephony. Skype doesn’t solve the mobile part yet. (And for vendors who want to write in and tell me about your mobile VoIP client, we’ve installed them all for the voice and messaging report, and we’re not too excited yet.)

However, that’s not the broken part of the experience. What’s really horrible today is having to interact with a call centre. It’s a frustrating and impersonal experience, from the opening “Se Habla Español — press one”, to the laborious maze of menus, via the tedious scripts read to you, and onwards past the erroneous data entry to finally reach the insecure dictation of credit card details to complete the transaction.

That’s the problem Skype needed to fix.

Next, fix the problem

The point of the Internet is to act as a “meta-medium” in which new media can be created without limit. Skype is too close to traditional telephony, and the other parts (IM, file transfer, video) aren’t quite integrated right. What they could have done, and should have done, is made the user interface more multi-modal. That means the Skype window is a place for shared content and experiences. If I drag a picture into it, we should both see the picture.

Now, the next stage is to make this a shared space between users and merchants. What if I simply dialled freephone numbers from within Skype? Well, Skype could start to do deals with major call centre technology suppliers and vendors so that the IVR menu would be visually pushed down to the client. You can immediately jump to the option you need. No need to ask if you want Spanish, as that’s obvious from your settings and preferences within Skype.

Use the Internet to create new signalling systems. Indeed, Skype could just as well done a quick call-back to your landline or mobile phone and not used the Internet at all as the bearer for the voice. That’s not the important bit.

You can probably see where this is going. Why stop at IVR menus? Any form of content could be pushed down to the user, as a shared space. A video, a Flash demo of a product, or a web form. “Are the details we have for you here correct, Sir?”. Then when it comes to transacting, there’s the Paypal-branded “enter your PIN to have us authorise payment to this merchant”. No need to tell someone in India the security code from the back of your card. (Did you know that call centres tend to be infiltrated by organised crime? Now imagine what the Skype adverts could have looked like… “Do you dare to tell anyone your name and address?”).

A 2-sided business model

One of the aspects that took a while for me personally to understand about two-sided business models was that you don’t need money from both sides, just value being exchanged. Google doesn’t charge you for search or email, but you are paying in kind with data and attention. In this case, users are creating value for the merchant by acquiring a rich communications tool that allows the merchant to circumvent the limitations of the public telephone system.

It’s the merchants who would be expected to pick up the tab here. Lower costs for the call centre, less fraud, higher customer satisfaction, and a UI that’s more amenable to pushing promotions and up-sell opportunities.

This is remarkably similar to eBay’s business model, where users and merchants come together via the eBay hub to trade. eBay is a transaction system for money, Paypal is a transaction system for money. Both are 2-sided platform business models. And that’s what Skype needs to be! It was bought by the right company, but they simply lost confidence and stuck to the easy dead-end of selling minutes. (We’ve some old ideas on how eBay could have bootstrapped this business.)

Now, we’re not claiming that you could re-invent Skype with this new business model. For a start, an awful lot of momentum has been lost, the brand has meanings and associations that can’t be undone, and we’re not in 2003 at the start of the broadband boom. But as an exercise in how to go about constructing business models, we think it’s one you’d like to hear. Preferably in wideband audio, and with a neat multi-modal, secure, transactional user interface.

Ed - we’ll be extensively discussing the future of voice and 2-sided business models at the April Telco 2.0 event.

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February 4, 2008

Ring! Ring! Hot News, 4th February 2008

[Ed - reader promotion: If you’re thinking of coming or sending a delegation to the next Telco 2.0 Executive Brainstorm - 16-17 April, London - there’s a 20% discount if you book before 12th Feb. Details here]

This Week: Winners and losers from the cable cut crisis; Deutsche Telekom loses 2 megasubscribers, copies BT’s homework; AT&T EDGE outage; Sprint relaunches iDEN to battle $31bn writeoff; Dunstone darks DunBlog; Vodafone in data price cut, number porting case; Moto considers handset sale; MS vs Yahoo; Android phones are coming; Nokia-Trolltech analysis; IMS pony still yet to be located; 2.5 million SMS news subs in India.

It was the week the network died, what with no less than four major submarine cables getting backhoed (or rather, anchored). Some thought terrorists were assailing the world’s communications infrastructure; others that the giant squid were getting restless down there. Others thought it was the prelude to a US air-raid on Iran; Todd Underwood and his team at Renesys, though, had the data; Iran wasn’t even in the top 10 countries for outages as a percentage of BGP prefixes. As the operators of FLAG & Co scoured the world for cableships, divers and the like, their competitors who still had capacity in the area (like SMW-3, SAFE et al) were circling like vultures.

And the top vultures, according to Renesys’ data pulled out of the Internet routing table, were Telecom Italia, BT, VSNL, SingTel, and Level 3. FLAG itself, AT&T, and Sprint suffered heavily; BT didn’t lose any networks out of the 1,400 total announcements from Pakistan but managed to restore some 500 out of the 1200 that were back online by the 2nd, but saw the exact opposite in India, where it was a major loser. At least it wasn’t as bad as C&W, who lost 150 Indian networks and hadn’t restored any by the 2nd (being a C&W manager is looking dangerous again, too). Sprint lost 210 or so networks in India and had only a dozen back up by the 2nd; SingTel, which has connectivity to the wider world via APCN and transpacific networks and also via SAFE, was the big winner in India, losing no existing networks but restoring connectivity to 210 more prefixes. Level 3 lost 100 routes in India but reconnected 220.

In Egypt, Telecom Italia was the champ, restoring all its lost networks and many more besides for a gain of over 300; France Telecom hadn’t restored some 220 routes by the 2nd, and Verizon wasn’t looking too well either. In Saudi Arabia, there was cheering news for DTAG, gaining some 12 routes; VSNL had a similar net gain, as AT&T, Sprint and FLAG were still to restore dozens each.

Deutsche Telekom could have done with cheering news; whilst the global carrier operation was scrambling to grab customers in Saudi, the retail side in Germany was confessing to losing 2 megasubscribers in the last quarter. It comes as no surprise, then, that the plan to sell their IT division, T-Systems, is being dropped; the operation is instead being rebranded as “Enterprise Services” and the systems integration side beefed up. It sounds a lot like they’re copying BT Global Services; and who can blame them?

In other telco disasters, AT&T threw a major data network outage on Thursday, darking countless Blackberrys. Sprint counts as a telco disaster lately - they may be about to write off the whole value of Nextel - so we’re interested to see that new boss Dan Hesse announcing the launch of new features for their iDEN push-to-talk network. Voice. And messaging!

Carphone Warehouse CEO Charles Dunstone has apparently given up blogging; his motives for this are unknown but presumably have to do with the abuse he got over the slow roll-out of his unbundled broadband. In other telco bids for popularity, Vodafone is suing the UK regulator Ofcom in an effort to stop them from…making mobile operators port numbers instantly. That’s going to endear Voda to the public.

In fact Vodafone does have a point of sorts; they argue there’s a risk of “slamming”, a quaint British criminal custom that broke out when power and gas distribution were deregulated in the 1990s. Essentially, salesmen for one party would run around the country pressing people to change providers and make their commissions; as there was no out-of-band check on the contracts, inevitably they began to forge signatures on the contracts and thousands of people turned out to have been enrolled unwittingly.

However, there is one very obvious solution to this in a telecoms context; send the user an SMS, already, so they can confirm whether they agreed or not. Strange Vodafone hasn’t thought of that; perhaps their motives are not so pure after all. Whatever their motives are, some things are going well; data revenue was up 51% across the Vodasphere, and they expect it to reach £2bn this financial year. The secret sauce is of course that they are dramatically cutting prices and hence, margins.

Meanwhile, Carl Icahn mounted another drive to sack the board at Motorola. Whether responding to pressure from Icahn, or just to the Telco 2.0 influence, Moto announced that it’s considering ditching the handset business. The main reason to be sceptical is the difficulty of finding anyone who would want it; when BenQ bought the Siemens handset business, Siemens memorably had to pay them to take it away.

Meanwhile, general-purpose technodrivel was well catered for by the Microsoft bid for Yahoo!. Google, predictably, doesn’t like it, but it’s hard to say whether they are really worried (for the future of the Internet, no less) or whether they are simply making trouble and the real threat is to MS and Yahoo! themselves. A great philosopher once wrote that putting stupid people together doesn’t make them any less stupid, and Bubble Generation seems to think this is similar. However, the economics of platforms is pretty clear; savage hugeness is a working strategy.

But the only market where MSYahoo would be in a leading position, or even close, is the market for banner ads, where they hold 30 per cent of the game. If anything in the online ad business is the past, though, it’s banners. The Register reckons it could be the finish of Microsoft’s server products if they go with a Google-like open-source+homemade hardware strategy; which means they probably won’t.

Meanwhile, Dell is threatening to launch a Google Android phone at next week’s 3GSMHHMobile World Congress; there’s some interesting comment about the possible Nokia response here. (Just why aren’t there any more S80 gadgets?) And did you know Nokia WebKit browsers have tabbed browsing? Much more here and here.

Some people are still looking for the IMS pony; meanwhile, Amazon gets on with building the platform, Indian newspapers sign up 2.5 million SMS news subscribers, open access spectrum is coming…and O2 points the iPhone at enterprise customers.

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