The Amazon Kindle e-book reader is back in the news again with a headline $40 device price cut to US$359, with Jeff Bezos giving an interview at the annual All Things Digital soiree, and various financial analysts speculating about sales so far.

The team at Telco 2.0 are huge fans of Amazon and the way they continually evolve their e-commerce platform capabilities. We see the Kindle in this light — adding a wireless content delivery capability. While the device itself is very interesting, the most important part of the equation for Amazon shareholders is the launch of Whispernet, the wireless network.

Strategic Imperative

In its recent Q1 2008 results, Amazon announced that media sales were US$1.2bn in North America (57% of total sales) and worldwide US$2.5bn (61%). The Media segment includes books, movies, music, software, videogames as well as digital downloads. The world of delivery by physical media, such as paper and CDs, doesn’t have a stranglehold on any of these types of digital goods.

Without a compelling delivery offer, Amazon risks a lot of its customers choosing other sales outlets for their digital media goods. Even worse, as the percentage of media goods delivered online grows over time the leakage would increase without action — the sooner the better.

Amazon has been busy adding capabilities to allow downloading over the internet to the PC and has launched services such as AmazonMP3 and AmazonUnbox. Whilst these are interesting services, there can be no doubt that in terms of market share they pale into insignificance compared to the Apple iTunes Digital Store. Amazon faces a long battle playing catch-up.

Electronic Book Readers

The Kindle is not the first reader on the market, and Amazon seems to have learnt the lessons of its predecessors. It is pretty obvious that it offers features which make it a stand-out compared to main competition, the Sony eReader.

The main advantage is that the Kindle is not tied to a PC - you can download from anywhere within range of the Sprint CDMA cell towers, which is most of mainland USA. From everything we’ve read this convenience is a key factor. Just as with SMS vs mobile instant messaging, the public clearly appreciates a well packaged and presented offer.

You can order from the device or from the PC with delivery to the device. The Amazon Cloud keeps a record of your purchases and you can redownload content as required. The pricing is also interesting, as you pay-as-you-go for content with the delivery charge bundled into the sticker price. There is no separate ISP account needed, and no anxiety over ‘fair use’ or metered access.

Digital Text Platform

Perhaps the most interesting element of the offer is Amazon providing the platform for the publishers to reach the devices in Amazon’s proprietary format with DRM. Amazon has launched its “Digital Text Platform” for any aspiring author paying the author 35% of the retail price less taxes and bad debts. The process must be pretty straightforward and appealing to even the largest publishers as Amazon is listing 125,000 books available in Kindle format. Amazingly, even in these early days for the capability, a like-for-like comparison across these titles shows 6% of sales volume is coming through the Kindle.

The extension of the platform beyond books was available at launch with newspaper subscriptions and RSS feeds available for a price. Amazon will even convert email attachments for US$0.10 a go. This distribution system is far more interesting to Amazon than the actual device. We won’t be in the least bit surprised to see other non-Amazon devices appearing as the market size is proven to be interesting.

Whispernet

Whispernet is Amazon’s data MVNO with Sprint. As far as we can make out, Sprint is offering raw dumb pipes to Amazon and nothing else.The only lock-in to the Sprint network is probably contractual. We would expect that Amazon is paying is some sort of sliding scale charge according to the amount of data downloaded.

The modem within the Kindle is an AnyData DTEV-DUAL based upon the Qualcomm MSM6500 chipset. This operates both at 800MHz and 1900MHz and EVDO speeds of up to 2.4Mbps. The standard modem software includes 2-way SMS, a TCP/IP stack and support for BREW.

The system integration role developing the various software applications was performed by Qualcomm and includes several innovations including overall network management, the security model, remote device management and content delivery functions. As far as the consumer is concerned everyone is completely controlled by the Amazon e-commerce platform.

There appears nothing in the specification which means that the Kindle would not work on any CDMA network without a little system integration work. The Euro WCDMA networks are a completely different matter and would require a new modem and low level system integration work.

We suspect that once the Whispernet model is proven then all the functions will be abstracted and added to Amazon Web Services available to all developers. In other words, Whispernet will become a direct competitor to a lot of Operators own embryonic platform services. Whispernet could become a very disruptive force not only in consumer space, but also in the M2M and specialised business wireless networking space.

Even more interesting is comparing the very different approaches taken by Amazon, Apple, Microsoft and Google in getting involved in the wireless game. But this requires a lot more attention for a later date.

Postage and Packing Included

The million dollar question is the wholesale rates that Sprint are charging and whether Whispernet can be used for any other media forms.

The average size of an eBook is 700KB and with consumer plans working out around US$0.01/MB, the overall delivery charge to Amazon is probably immaterial for a $9.99 book sale, especially at wholesale data plan rates.

If the System Integration costs for building the capability are treated as a sunk cost, which we admit is a big assumption, then the incremental costs for delivering a book will be far cheaper than with snail mail. Of course, there will be additional amount of opex to cover the extra computing costs, but this can probably be offset against cheaper storage and handling cost for eBooks compared to their paper brethren.

The economics become a lot more strained when dealing with a US$0.99 4MB music track and whether a return can be made is heavily dependent upon the percentage paid to the record company.

Using cost comparisons from a market that I am familiar with: with a 79p music track in the UK, the approximate split is 52p for the record company, 12p for the VATman and 6p for the collection society, which leaves only 9p for the distributor. After taking into account payment fees and opex, music could be marginal.

Yet More Wireless Devices

Of course, the Kindle is an optimised device for reading and we believe the world is diverse enough to support both the Kindles and Smartphones of the world. We draw a parallel with the market for digital cameras: for some a cameraphone will suffice, for others a dedicated digital camera is required for high quality snaps. For the occasional browser of online newspapers looking to kill a few minutes whilst on the morning commute, the smartphone will suffice; for dedicated readers of novels, a dedicated device will be much preferable.

Similarly, once the Kindle is proven then someone somewhere will try to launch a standalone wireless music device which doesn’t require a PC (unlike the iPod) and isn’t overloaded with voice and internet browsing functions (ie smartphones) and delivers a much better experience to the ear than the standard 128kbps mp3 codec.

There is also a case for a dedicated Mobile TV & Music device evolved from the portable media player market, especially if it doubled up as in-car entertainment. Here MediaFlo rather than the Whispernet is the key enabler, but Amazon could still feature as a sale outlet.

Kindle Lessons

We believe the Kindle offers a few basic lessons to all players.

For Platform players: you need to experiment and continually develop new capabilities. The capability itself is probably more valuable than any specific device or service especially. However, keeping one foot in the retail services space allows you to prove out the model and the platform.

For Hardware players: bringing in new players requires a lot of system integration effort and hand-holding. But the rewards are potentially large.

For Operators: traditional wholesale deals are good and keep revenue which would otherwise leak elsewhere. However, thought should be given to offering additional services and try to gain some of the revenue that accrues to system integrators and other service providers, particularly on services delivered to the existing retail customer base.

For Financial Analysts: it is difficult to model platform plays using traditional metrics. Time to build some new spreadsheets.

Posted at 08:03 PM | Link to this article | 3 comments

We first encountered Mobile Signature at this year’s Mobile World Congres with Telefonica, but the system’s big success has been with Turkcell. And we think it sums up a lot of the possibilities and challenges posed by Telco 2.0.

So what is it? Well, it’s an implementation of out-of-band two-factor authentication with digital signatures generated through public-key encryption. Right. More usefully, it’s a service which permits essentially anyone to get strong verification of the identity of people they deal with, instantly - you just call a Web service API. Looking at it the other way around, it permits its users to prove their identity with a very high degree of confidence, strong cryptographic security, whilst protecting their underlying canonical identity.

It works like this: at setup, a Java application is configured over-the-air onto the user’s SIM card (which means it doesn’t matter what kind of device the user has, or even if the device is itself trustworthy). This app asks the user to provide a secret, which is used to generate a set of public and private keys. The user name is registered with the user’s telephone number, thus verifying them against the telco billing records.

When someone wants to check identity, a challenge is sent from the telco to that number, using the public key. The application verifies the challenge, then asks the user to enter the secret, stating details of the request. If the keys match, the digital signature is returned. Because the challenge and response take place independently of the transaction - it’s not the same web page, merchant terminal or whatever - you can’t present a fake identity service or phish for IDs. If someone is trying to impersonate you, you’ll know about it at once because you’ll get the ID request, which you can then deny - and even if they steal the phone, they’ll need to know the secret, which is never transmitted over the network or stored on the device.

It is genuine two-factor out-of-band identification, it’s independent of devices, and although the digital signature is supported by the telco billing record, you don’t have to sign with the name on the record, so it can provide secure anonymous (or rather pseudonymous) transactions.

Each identity request costs about the price of an SMS message. And Turkcell reckons Mobile Signature users send an extra 21 messages on average a month - a Chinese user, for example, sends 95 messages a month on average, so that would be north of a 20% uplift in messaging revenue.

But, of course, it’s not just the user side and the operator. That wouldn’t be two-sided, would it? It was crucial to the success of Mobile Signature in Turkey that the banks also got aboard. 12 Turkish banks formed a partnership with Turkcell; not only did this ensure there would be a base of institutions using the service on day one, avoiding the first fax problem, but they also invested in promoting it in advance of the launch. From their point of view, it offered significant savings on fraud, as well as the reputation benefits of offering the latest technology and investing in security.

Identity is a crucial enabler for the whole spectrum of Telco 2.0 B2B VAS, as this slide ought to make clear.

You can read much more about the system in this document from the developers, Valimo (pdf).

Posted at 11:39 AM | Link to this article | Add a comment

In Today’s Issue: Chinese restructuring and 3G licences are here!; Unicom tapped for UMTS; Every breath you take, every move you make, DTAG is watching you; no further disaster this week at Moto; 3UK squeezed on MTR; dumb pipes smarter than you think; Nokia drinks the DRM Koolaid; MTN-Bharti off, MTN-Reliance on; no money for you, WU; two-sided API-enabled OTA config firm launches in Telco 2.0-fest; send in photos of your unmentionables for only £49.99.

The great Chinese 3G story is at an end. After years of speculation, MII — that’s the Ministry of the Information Industry if you’ve not been keeping up — has spoken. China’s essentially going to end up with three huge converged telcos, in a sort of ‘Son of RBOC’ arrangement mimicing the USA: as China Unicom merges with China Netcom, China Mobile buys China Tietong, China Telecom buys Unicom’s mobile assets, and China Satellite becomes a China Mobile division. (Yes, there will be a test afterwards to check you’ve remembered it all.)

Now, China Unicom was famously the large mobile operator that wasn’t legally allowed to be one — it was restricted to providing CDMA WLL service, but just didn’t bother to restrict the users’ mobility. So that’s cleared up. But are the Chinese just going to strong-arm Unicom into giving up a profitable chunk of its business? Not quite.

The other China news is that the 3G licences are finally out. And MII has finally resolved its conflict between wanting to boost indigenously-developed standards, wanting to use an established world standard, and wanting competition. They’ve decided to cut the baby into three equal parts. Despite much talk about guiding enterprises to use homemade standards, China Telecom gets a CDMA2000 licence from Unicom, presumably without the dead-letter WLL clauses. China Mobile gets the short straw and will be forced to deploy TD-SCDMA whether it works or not (no wonder the shares tanked). And China Unicom, it seems, will be compensated for losing the CDMA business with a spanking new UMTS licence.

Stand by for fleets of Ericsson, NSN and Alcatel-Lucent salesmen heading east, to say nothing of operators — with Vodafone already having a stake in China Mobile, and Telefonica and Deutsche Telekom both being in the mood for a really ambitious monster acquisition, someone’s bound to try.

Ah, Deutsche Telekom. They’re the ones who just added to their problems when they were caught tapping their own board members’ phones. Not just them. Every financial journalist in Germany. Result: a major row. Rene Obermann apparently enjoys the confidence of the German government, a major shareholder, but then, a vote of confidence from the board is traditionally the first step to getting rid of an unwanted football manager. The big questions are likely to be what Obermann knew and when he knew it, as the spying apparently took place whilst Kai-Uwe Ricke was in charge, and Obermann was still at T-Mobile. Perhaps they could have paid more attention to their customers and less to each others’ conversations…

In other corporate crisis news, Motorola finally had some good news. They won’t have to pay four billion bucks in debts arising from the falling commercial debris of satellite operator Iridium. This cheered everyone up so much, they reckon Kyocera might want to buy the doom-sodden handsets operation.

3UK recently stopped being a crisis, when it suddenly started to make money. But some traditions die hard. UK regulator Ofcom has just told them off about their termination fees, which will be coming down some 45 per cent. Ouch. Of course, the main way 3 was making money was by pushing out as many USB dongles and multi-gigabyte data buckets as possible. Hardly surprising given that 3G’s real purpose in life was more voice capacity, followed by big, fat, dumb pipes.

It looks like only about 4% of (much increased) data traffic on a Finnish UMTS net comes from smartphones, with 92% coming from laptops. Indeed, who on earth would want an IMS with numbers like that? In the above article, Brough Turner further claims that China Mobile’s NGN is going to consist of a straight IP network with voice switching provided over-the-top using SIGTRAN. (Question — so where are the third party APIs?) But there’s something more fundamental about this. If you want to sell data transfer, it makes sense to assume that most data will be transferred between the most convenient devices to produce, store, or consume it. And those won’t be the ones with 4×3 keypads and postage stamp screens — right?

One way to make people ‘consume’ mobile content is to, um, destroy their old stuff without asking them. Yes, put like that it sounds silly, but it does seem to attract some people — like Nokia, sad to say, who have got a lot of unhappy gaming customers who can’t play their games on new handsets.

Meanwhile, the MTN-Bharti Airtel deal fell apart, and Reliance instantly vultured in, in the same week they picked up the pieces of crashed VNO Vanco.

Cat Keynes, meanwhile, agrees with Telco 2.0 about the problem with a mobile-money partnership that includes Western Union. Quite simply, the whole point of a mobile money application is to eat WU’s gutbusting monopolist’s lunch (their margins are around 15% of transaction value, with an average transaction below $200 - work it out for yourself).

Recently, we have been doing some research into future identity services telcos could support. We said there would be a much wider range of customers for over the air access to configure and authenticate via SIM cards. And as if on cue, here’s one now. WDSGlobal is hoping to get the public to pay £1 to get their devices properly configured. This doesn’t sound so great, until you realise that mobile operators’ (and other players’) shops don’t have any incentive to make sure the gadgets leave the building correctly set up. And if the IP configuration’s not there, well, they won’t be doing any of that evil over-the-top stuff, will they?

So WDS will sort it, for a price. Here’s the cool bit, though: there are APIs so that mobile content or software makers can link this to their sales and delivery processes, making absolutely sure their products will work.

And finally, you can pay £50 to MMS someone photos of your naughty bits. We thought YouTube already provided that for free. No. The someone is a doctor and the idea is to diagnose sexually transmitted diseases. Sexually transmitted diseases of the very shy, apparently. Now if only I could get MMS to work on this handset I have here… hmm, could there be a service to help me?

Posted at 09:52 PM | Link to this article | Add a comment

Reading about novel energy trading company EnerNOC, what sticks out is just how big the opportunity is for ‘Telco 2.0’ operators and business models. Remember, your job as a _personalised logistics services provider for valuable data_ is to help get the right information to the right place at the right time, securely, swiftly and cheaply. And rather than trying to squeeze an extra millicent of termination fees from the regulator, why not solve some problem in the world of energy instead?

One of the biggest barriers to making use of the huge quantities of energy the sun provides for free every day is reliability. The sun doesn’t always shine, and the wind doesn’t always blow. So, in most places, the most plentiful (and cheapest) forms of renewable energy are subject to a discount. They are not, as the electrical engineers say, despatchable. This is a serious problem, because electricity cannot be stored easily. Even without the added complexity of variable wind power, the grid has to match supply and demand in real time, all the time, whilst observing some very intricate technical constraints (pdf).

Usually, the solution is to categorise different sources of power according to the time they take to respond. For example, coal and nuclear stations can crank up more power if necessary, but they need hours to days’ notice to do so. Hydroelectric and natural gas stations, however, can react in minutes. So the first category — baseload generators — provide bulk power and are paid a bulk price. The second category are kept on stand-by until there’s a surge in demand, but then they earn a premium price. And unfortunately, you can’t turn on the wind in the event that Drax is doing urgent maintenance or a million kettles just went on line.

But there’s no reason in terms of economics or physics that you have to respond to a shortage of power by adding more power. It would be just as good to cut demand. Of course, this is always the ultimate reserve, since when there is no more capacity, some people will just have to put up with a power cut. But those are highly inconvenient, especially because they are total, unannounced, and unpredictable.

What if it was possible to shift demand from the peak to the trough? Not all power-consuming activities have to happen now. Anything, for example, that uses a lot of electricity to make some sort of storable product could schedule its production to avoid the peak; in fact, if electricity is a big chunk of costs, it would make sense to do just that in order to benefit from lower prices. But the grid can’t count on this. Further, the benefits of “shaving the peak” don’t just accrue to the people who do it - the grid itself saves on buying ‘peaker’ power, and society benefits from avoiding power cuts. Why change your processes to help the electricity company? Similarly, it would be great if ISPs’ users wouldn’t leave their P2P clients running during the spikes in network traffic, instead pulling all that video in the middle of the night when the network is quiet. But who will do this just as a favour to the phone company?

Also, there are serious transaction costs - only the very biggest customers can take enough load off the grid by themselves to make it worthwhile for the power company to negotiate a contract with them and make the necessary management arrangements. That’s OK for the steelworks, but it’s not OK at all for, say, the supermarket lighting system…or the cold store. Cold store? In the Netherlands, they’re addressing the problem of using really large-scale wind power just like this. The refrigerated warehouses on the docks at Rotterdam are full of things that need to be kept cold - but don’t necessarily suffer from too much cold.

So when the wind blows, and there is so much electricity the grid needs to find a way of getting rid of it, the refrigeration systems are signalled to crank up, soaking up the surplus. When the wind drops, and the spot price of power rises, they know that it will take many hours for the temperature to rise far enough to be a problem - so the refrigeration goes off line, taking an equivalent quantity of demand off the grid. Electricity has effectively been stored for a windless day — with 100% efficiency, as the saving of power on the windless day includes all the power that would have been wasted, were the system running.

This could be done with every fridge in the country. But mutually advantageous trade isn’t happening, because the costs of transactions are too high and information is too dispersed. The more load an actor in this market could take off the grid, the more valuable this would be to all concerned. So, as with most of these situations, there are increasing returns to scale. If some sort of third party could aggregate large numbers of power users, they could trade with the grid just as the owner of a power station can; not only would the users benefit from lower average power prices, but the third party would also be able to get paid for the ‘negative watts’ they supplied, some of which they can pass on to make it worth the users’ while. It’s a classic two-sided market.

The analogy with Telco 2.0 is pretty clear. But here’s where it gets really interesting; to make “demand response” work, you need the ability to monitor thousands of customer premises’ electricity usage in real time, and tell them to cut back according to rules based on the price of power, the time of day, and the customer. The signals must get through. And you’ve got to be certain of the identity and location of the loads - you definitely don’t want free-riders claiming to cut back and then hogging the juice anyway, and God help you if you send a CUT USAGE 50% message to the liquid hydrogen factory rather than the casino.

You’re going to need something with a reliable database of users, location-awareness, secure and reliable messaging (not like these muppets, eh. Haven’t they heard of SS7?), and a billing capability…isn’t this starting to sound like a job for Telco 2.0? As we’ve often pointed out:

• it’s about deploying all your assets, including field engineers,
• it’s about assets at the network edge, not just fancy switches in the core,
• it’s about enterprises, not just consumers, and preferably both joined together,
• it’s about signalling, rather than bearer traffic, and
• it’s about messages that carry a very high social or economic meaning.

EnerNOC’s data traffic is essentially SMS, but they can currently supply 1.5GW of electricity to the Californian power grid in a pinch, without fuel, without emissions, at a moment’s notice, whilst simultaneously helping downstream customers to cut their electricity bills.

PS - Today’s oil price is just under $130/barrel and predicted to rise over the next year. Not only that, but things happen - suddenly.

Posted at 09:30 AM | Link to this article | Add a comment

In Today’s Issue: Motorola in the psychiatric ward; Verwaayen takes a bow;Bharti/MTN deal in the offing; Vodafone buys social network app, customers; Orascom: Iraq, Syria, Zimbabwe, North Korea, and now Cuba; C&W soon to be C and W; data from space cheaper than SMS; Qualcomm in the UK; more mobile-TV alphabet soup; Sprint launches WiMAX, loses 1 million customers and Embarq wholesale contract; MacBooks with WiMAX?; new J2ME toolkits; Verizon Linux; NFC SIMs in Thailand; death of muni-WiFi

Oh dear. Evolving Excellence have a killer detail about the crisis at Motorola and the rather non-obvious solutions they’re adopting - namely, picking a CEO who refuses to use computers and cutting back on R&D. Because, you know, they stopped meaningful product development for two years after the RAZRs came out, and that worked so well. Not just that, but the new guy’s background at the company was in the automotive business, which they’ve now sold as non-core.

Let’s go through that again: you’re a mobile telecoms vendor with a serious crisis at the handsets operation due to a lack of good products. So obviously the answer must be to cut back on product development and appoint someone whose expertise is in a completely different business you sold because it had nothing to do with telecoms, who doesn’t actually use any of your products.

He shrugged off questions about BT’s total shareholder return, saying a chief executive should never comment on the share price

The MTN-Bharti deal edges closer; the parties have apparently agreed that the Bharti chairman should be chairman and the MTN CEO, CEO, and the new company should be dual-listed in Mumbai and Johannesburg. The price is somewhere between $41-44bn, to be paid in a mixture of cash and shares; the cash being fronted up by 31% owner of Bharti, SingTel. (Note the Great Indian Developer Summit coming up this week.)

So where is Vodafone? Apparently, they’re more interested in Zyb, a mobile social network app; makes a change for them. But if you think Vodafone takes risks on dodgy foreign acquisitions, try Orascom, who seem to be planning to add a Cuban network to a portfolio that has included Palestine, Syria, North Korea, Zimbabwe and Iraq. Vodafone is keeping up some traditions, though: they’re offering New Zealanders free ADSL with mobile phone contracts. Monetise that.

Cable & Wireless, having reorganised into two chunks and taken the unusual step of sacking several thousand customers, has been looking happier of late. So obviously it’s time to cash out before anyone notices; they’re looking at splitting up the two new divisions and floating them both. Interestingly, the UK half of the company has been renamed “EAU”, for “Europe, Asia, and the USA”; the other half is now called “International”, presumably because EAU is insufficiently so in itself. We haven’t seen corporate geography as odd since Vodafone created a European division that didn’t include France.

Meanwhile, it appears that data transfer from the Hubble Space Telescope costs less per bit than SMS; if you haven’t yet realised that your fat margins are almost entirely economic rent that the OTT-ers will compete away quick smart, this should be a red-flashing screamer warning that it’s time for new forms of voice and messaging.

Qualcomm has bought a spot of UK radio spectrum, which RCR News reckons it wants for “testing” purposes. Well, it could have something to do with their strategic relationship with Sky, right? Not that anyone else in Europe is at all interested in MediaFLO. In other mobile TV news, Korean vendors have joined a new standards body in the US; just what the industry needs.

Sprint-Nextel, wmeanwhile, announced the launch of their Mobile WiMAX network in Washington D.C and Baltimore, which is presumably why they’re reported to be after a ton of Gigabit Ethernet switches. Sprint also announced, with considerably less razzamatazz, that it had lost over a million subscribers in the first quarter. Not just that; the Telco USSR faces the final insult, as its spun-off landline arm Embarq announced it was taking its trade elsewhere.

Swooping in to the fine detail, you might be able to use your Apple MacBook with it: filings with the FCC show that Intel’s latest WLAN/WiMAX card fits the Mini PCI Express slot in the shiny.

There’s a new graphics toolkit for mobile Java around. Also at the Nokia Forum, there’s a truly scary diagram of the Mozilla Platform; it’s getting almost telco-esque in its complexity and the sophistication of the PowerPoint required to depict it.

The LiMo Foundation, the Motorola- and Access-backed mobile Linux community, has signed up a launch customer, as they say in the aircraft industry: Verizon. Apparently, they’re concerned that Google Android is insufficiently open. Heaven rejoices more over one sinner who repenteth; it wasn’t that long ago that Verizon was the evilest RBOC in the valley, the people who sued the FCC in an attempt to overturn the Carterfone ruling. Now they’re into mobile Linux and network-friendly P2P.

Some talk of NFC functions on the SIM, but the (slightly Orwellian-sounding) True Corporation of Thailand is deploying them, with the (rather large) caveat that to ensure it works, you’ve got to install a special antenna on the outside of your phone. Great.

No-one likes municipal Wi-Fi any more; and one of the very first deployments from the days of shiny-eyed geek idealism untempered by radio engineering has just died, as Earthlink announces the switch-off of its deployment in Philadelphia

Posted at 12:37 PM | Link to this article | Add a comment

We’d strongly recommend to all telco-media-tech strategists worldwide the GSMA’s Mobile Innovation Marketplace event on 3-4 June in Atlanta, USA. The GSMA has unquestionably the best pulling power on senior mobile execs (see list below), and their new events team has really shown that it can do a lot more than the (still) mighty Mobile World Congress (those at the Mobile Money Summit in Cairo last week will certainly agree).

There’s a 30% discount to readers of the Telco 2.0 blog. Just use the code MIMFOFZ when registering here.

Telco 2.0’s MD will be among the speakers, who include: Ralph de la Vega - CEO, AT&T Mobility; Michael Joseph - CEO, Safaricom (Vodafone Kenya); Tom Wheeler - Managing Director, Core Capital (former President of CTIA); Torbjorn Nilsson - Chief Advisor to the CEO, Ericsson; Ted Matsumoto - CSO, Softbank (fastest growing mobile operator in Japan); Mauro Sentinelli - CEO of Telecom Italia Mobile and Member of the Board of Telecom Italia; David Christopher - CMO, AT&T Mobility; Patrick Gauthier - Senior Vice President, Innovation, Visa (manages Visa’s corporate VC program); Will Hodgman - CEO, M:Metrics; John Giere - CMO of Alcatel-Lucent; Christina Domecq — CEO, Spinvox.

Here are some more details:
· The Mobile Innovation Marketplace Americas boasts an agenda with an extraordinary level of executive participation from a diversity of regions and industries. It is not common in North American telecom circles to find so much perspective from overseas, and the level of thought leadership will be unique
· The agenda also includes pitch presentations from 15 emerging growth technologies to a judging panel comprised of executives from AT&T, SKT, TIM, Belgacom, Intel Capital, Microsoft, and Orange. Two companies will emerge from the Marketplace as “best in show” and win a trip to compete in the Mobile Innovation Finals at the 2009 Mobile World Congress in Barcelona. www.mobileinnovation.us

Posted at 02:39 PM | Link to this article | Add a comment

In Today’s Issue: DTAG wants a monstermerger; T-Mobile USA subscriber surge; Sprint/Google/Clearwire/Cable/Intel; superduper HSPA; the coming US mobile broadband price war; profit at HTIL; cunning Charlie Dunstone; Broadband (breadth differs); some sort of device from Apple; TV needs a new business model; Vodafone vs MTN?; Huawei handsets havailable; BlackBerry discovers “fun”; poor KDDI results; TeliaSonera likes the FTTH; heart-controlled mobile games; Brough Turner is right

Deutsche Telekom boss Rene Obermann didn’t want to discuss the Sprint-Nextel order, but he did confirm that there will be a huge (and undoubtedly overpriced) foreign merger in the company’s future and that he wants the company to make two-thirds of its income abroad in the future.

That’s not necessarily such a bad idea. T-Mobile USA’s revenues were up 14% in the first quarter as the company claimed 981,000 net adds, even before the acquisition of SunCom Wireless was counted. Churn was marginally lower, too, and their UMTS network in New York was switched on. You could wonder what they would want Sprint for, especially now the big WiMAX deal is done. Yes, it’s finally happened - in the single biggest act of vendor financing in the history of telecoms, Sprint has sold 49% of its WiMAX operation to a consortium including rival WiMAX op Clearwire, Google, Intel, and a squad of cable operators. The game is clearly to spread the cost of a national roll-out between Sprint and Clearwire, to find alternative sources of funding for the roll-out, and for Intel to guarantee the job gets done in their home market.

But the really interesting thing is that the new entity has signed a wholesale agreement with Google. So yes, Google could soon be in the mobile or ISP markets. At least, it’s taken out an option to get in, which gives it critical leverage on key regulatory issues. And it gets to be the default search engine on all Sprint mobiles. At the same time, they are announcing their own take on Yahoo! OneConnect-style stalkerware.

DTAG might not want Sprint for the WiMAX, anyway, especially in the light of this story. Mobilkom Austria announced they were getting speeds over 10MBits/s out of Nokia Siemens HSPA kit, specifically the “Internet HSPA” option, which breaks out Internet traffic at the RNC level. If the HSPA people can deliver that, you’d be forgiven for thinking DTAG might just skip on the others. That makes five national mobile-IP networks in the US. Hello, price war!

Rather surprising news: contrary to long-standing tradition, Hutchison’s telecoms holding company HTIL has declared a profit. Just remember that too much champagne really does deliver a terrible hangover.

Carphone Warehouse, meanwhile, sold 50 per cent of its European shops to US retailer Best Buy, in exchange for an in on Best Buy’s chain in the US. The deal is valued at £1.1bn, and you have to remember that Charles Dunstone still owns 30% of the shares. No wonder he’s such an enthusiast.

Less enthusiastic were the good people at telecoms.com over BT’s new “Broadband Anywhere” offer. You get an HTC smartphone and some BT Openzone WLAN thrown in, and a 10Mb monthly data allowance. Well, it’s one way of fighting the broadband incentive problem [PDF], even if describing GPRS as “broadband” may set some kind of record.

According to Telephony Online, Apple may be about to launch some kind of mobile phone. Really? They’ve even managed to sell all the existing ones, apparently. And the new one will at last be a 3G device; which would be handy if you want to use the new native TV streaming client. Regarding television, meanwhile, their colleague Carol Wilson reckons that ads in Web video or IPTV will never replace the lost revenue from classic TV ads and subscription — where have we heard this before? She reckons we’ll need to come up with a new business model.

If you don’t want to, you could still go chasing emerging market growth: it’s rumoured that Vodafone is thinking of wading into the MTN-Bharti deal. It makes sense, in a grimly Telco 1.0 aggressive sort of way — Vodafone loves its South African (Vodacom) and Indian (Hutch Essar) investments, so why not some more?

What connects MTN and Bharti, by the way? Possibly this new submarine cable from Europe to India. MTN is one of the companies in the consortium working on it, which could be handy.

It’s becoming something of a trend that you can’t go to China for cheap labour any more. Those days are gone. So it comes as no great surprise to see Huawei looking for buyers for a stake in its handsets operation, perhaps as part of a strategy to get it listed on a Western stock market, or perhaps because they’re the latest megavendor to decide that handsets are no fun. Especially not super-serious RIM BlackBerries: but what is this? It’s a triband HSDPA Blackberry for the super-executive suit, with… music. Are they going soft?

KDDI might be, with an unexpected loss of subscribers. However, they claim it’s due to the termination of an older network and the transfer of its subs. TeliaSonera, meanwhile, joins KPN among carriers who are learning that their wholesale sides can profit from The FTTH Menace.

Meanwhile, Paul Coulton at the Nokia Forum shows off an unusual form of user interface — mobile games controlled by your heart rate. And finally, some wisdom from Brough Turner:

The ultimate solution for any activation process is to get rid of it

Posted at 02:25 PM | Link to this article | 1 comment

If you (or colleagues) are coming to the TM Forum’s Management World event in Nice in two week’s time, why not maximise your time investment and join the Leadership Summit on the Monday (18th May) - starts at 11am.

Telco 2.0 will be facilitating using our interactive ‘Mindshare’ method as well as presenting new analysis (new since our own event 3 weeks ago!). There are also 4 luminaries on tap to stimulate and drive the debate. Details here.

Here’s the rationale for coming: Ref our post on ‘Two-Sided Platform’ FAQs: “…telcos’ real value is in the service-creation and relationship management capability of their OSS-BSS”

There are tens of thousands of enterprises (large and small) that could benefit from telco assets that can help optimise time-sensitive and trust-sensitive business processes. There are vast untapped reserves of these buried within the OSS/BSS.

As we’ve modelled in our latest research report, the value to enterprises of optimising certain business processes is way in excess of the cost of the telecoms element - the latter is a ‘rounding error’. That means that there is plenty of room for high telco margins and what we’re calling ‘next generation termination fees’.

At the TM Forum’s Leadership Summit we’ll be discussing how to make the transformation to realise this opportunity.

PS: We’ll have 3 analysts at Management World till the Wed pm, so if you’d like to schedule a meeting just email us here.

Posted at 10:01 AM | Link to this article | Add a comment

Telecom TV’s new survey explores the future of IPTV. It’s an interesting survey and is quick to do. The link is here.

NB: For each survey you participate in TelecomTV will share the results with you for FREE and donate $1.00 to UNHCR’s charity, Ninemillion.org.

Background: Many Carriers, faced with decreasing voice revenue streams, are looking to IPTV for their next big win. With new opportunities comes risks and challenges; many critics point out that telcos are straying into new and dangerous territory, because in becoming content providers they’re not playing to their key engineering strengths.

What do YOU think is going to happen in this carrier-delivered IP market over the next five years?

Please fill out the survey here. It’s relatively quick, entirely painless and for a good cause.

Posted at 12:49 PM | Link to this article | 1 comment

One occasionally controversial, but always lucrative, part of the telecoms business is the collection of termination fees. For example, the UK regulator Ofcom estimates that approx. 15% of UK mobile industry revenue is via termination (in other words £2bn of a £14bn industry in 2006). What might happen to this voice and SMS wholesale revenue base as we move towards more open ‘Telco 2.0’-like models? We’ve got a surprising answer for you, based on two-sided markets.

In the very early days of the telephone network there were multiple competing access networks, which did not interconnect. You could have half a dozen lines coming into your property. This was clearly a non-scalable solution, since to be able to reach everyone you needed to subscribe to every network. This soon led to interconnected networks, with users choosing a single access provider, and fees levied to carry a call off-network. This naturally favours particular market structures, with dominant players receiving considerably more than they pay out, and with little or no price competition on termination fees. After all, if someone wants to reach you, what choice do they have except to go through the retail carrier the call recipient has chosen?

As a result, regulatory intervention has been commonplace to attempt to tie termination fees to actual costs. In a capex-intensive business, this creates a lot of creative work for lawyers and accountants attempting to allocate those costs. Traditionally telcos have done well out of this system, particularly GSM operators with calling party pays, but the pendulum might be about to swing the other way. Indeed, there are lots of arguments over whether this system is a good to a bad thing, or whether there should be a ‘bill and keep’ alternative without any termination fees. We’re agnostic, as we just have to deal with the world as we find it.

These fees are a kind of degenerate two-sided market. Like a full-blown two-sided market (e.g. Google Adwords), you attract an audience and then charge someone to access that audience. Those wishing to reach your subscribers potentially subsidise the acquisition of that audience. For example, we saw this in the past with free calling ‘on island’ in many territories in the Caribbean, but with very high termination rates for outsiders wishing to call in.

Not really a two-sided market when a telco is on both sides

However, it isn’t quite a real two-sided market. One of the attendees at our last Telco 2.0 Executive Brainstorm noted in the feedback:

I don’t understand the comment that c.99% of [core telco] revenue [today] is retail — 20% of revenue and 30% of EBITDA is already from wholesale termination receipts.

The problem is that those termination fees turn into retail call charges by other telcos. So the main effect is to damp down usage, not create value. This can be seen in the large gap between US and European average minutes used (but not ARPUs), due to differing termination regimes. The flip side is that Europe enjoys increased penetration (since you can subsidise receiving calls and it’s worth having a handset even if you never make a call).

You’re not drawing in new revenue from outside of telecom — unless you’ve a single dominant telco able to hold the user base ‘hostage’, or a perimeter fence to shake down rich expats. So it’s not really a two-sided market according to the strict definition, as you’re not tying two distinct groups together who wish to transact, just individuals; and providing just a conduit, not transactions. Nice for mobile operators, nasty for fixed ones, but still just stirring the revenue pot around rather than adding to it.

There are some existing two-sided revenue streams inside telecoms, such as freephone numbers, and premium SMS. The merchant is paying the telco as a customer for providing a service (access and billing respectively) in the context of a retail relationship the telco has with the user.

So much for the history lesson. Now for the meat.

Where’s the value in telephony?

Go back and check out the pyramid in this old blog post of ours. Telephony is sandwiched between two other processes:

• Rendezvous, which is the selection of the right timing, location, participants and medium of an interaction such as a call.
• Conversation, which is the process by which multiple interactions and linked together — for example, when a merchant promises to call you back to tell you if the goods are in stock.

The margins in telephony are declining, but we can create new products and processes that incorporate these elements. Specifically, we draw upon the Communications Enabled Business Process (CEBP) space. So an example is today my utility company sends me a text message asking me to read my electricity meter and send the answer back by SMS. Problem for utility company: I’m abroad, not at home, asleep, in a call, or otherwise unwilling or unable to do so. Problem for telco: There’s precious little termination revenue in a bulk SMS.

Job of the telco: help people ‘get through’

So, what can we do? Well, the telco offers an API that will only forward the message to the user when they get home. That could be using location, or other presence data (e.g. dual mode phone re-associates with home hub). Even better, the message is never forwarded in the middle of a call, or when I’m abroad. And it’s presonalised too. The telco knows what time of day I’m typically active. After all, I might be a shift worker. So the telco gets rewarded not for delivering SMS messages, but for getting meter readings in return.

The cost of someone coming to my door is ten dollars or more; that of a wholesale SMS message a cent or two. In the middle is a huge amount of margin to be made. And guess what? The only agent able to assemble the data to make the rendezvous or conversation process work well is … the telco.

So you turn a 1 cent wholesale SMS into a 1 dollar 2-sided market platform service. It’s not price capped, as it’s an information service, not a regulated telco service. And you can use the revenue to subsidise the retail side to gain audience and market share.

Need to build the right rich wholesale products

The over-arching pattern here is that (i) someone wants to get through to someone else, (ii) that access needs to be timed, presented and targeted correctly, and (iii) the person who receives the message is enabled and encouraged to act as a result. For example, adverts are part of a two-sided market, and also follow this pattern.

What operators need to do is look afresh at their portfolio of products and think how they could and should operate in a two-sided market. Take voicemail, for instance. Today a call centre that wishes to contact you has a single choice: to make your phone ring. This will gather standard per-minute termination fees. The problem for the call centre is that sometimes they may not wish to talk to an individual, as it drives up call time with social chatter. The resources for outbound calling also may not be at times that make sense to the recipient. Furthermore, a significant number of calls will ‘fail’, in that the callee will answer, but will effectively be unable to talk (‘call me back later’).

What if, instead, the telco simply offers an API to deposit voice messages into your voicemail? This can be charged at a higher rate than the equivalent per-minute fee. Then you let your imagination run riot in designing this wholesale access product:

• What if the telco held back the user notification until an appropriate time? (So if you’re roaming abroad, no 3am ‘beep beep’).
• What if the telco let the sender supersede a message, so there’s no confusion if there was a change of status (great for airlines keeping customers up to date with schedule irregularities)?
• What if it wasn’t just an audio file being played, but the merchant could pass on, say, a Voice XML document with an embedded IVR?
• What if indeed the user, when they play a message, is really connected live to the merchant’s IVR? “The product is now in stock, press one to confirm your order.”

As you can see, once you’ve assembled the consumer audience, the value you can extract is only as good as the range of interactions you can offer to merchants. By making these APIs blend customer data, historical behaviour and network access they can be very sticky, which translates to high margins. That is why we think telcos looking at the advertising industry are focused way too narrowly. The opportunity is in enabling a far greater range of interactions across many more business processes than just marketing.

Telco brand as trustmark

Facebook is a site that epitomises the Internet approach. It offers rich functionality, an open API, and is teeming with innovation. No telco service is ever likely to compete with the state of the art of Internet services in terms of functionality. On the other hand, with its beacon privacy disaster, lack of payment mechanism, and problems with abuse and spam, it also reflects the worst of Internet commercial culture. Or consider the massive outage at Twitter, which is fairly typical of start-up growth pains.

The telco strength is in the ‘non-functional’ parts of the puzzle: scalability, availability, support, billing, provisioning, etc. In particular, the role of the telco brand in these new markets is that of a trust mark, much like that of the VISA as you go into a store. You don’t hesitate to enter your PIN into the terminal, because you believe you are safe (rightly or wrongly).

The telco doesn’t need to compete with all the latest innovations in social media and personal communications to be successful in 2-sided markets. The telco just needs to be able to bring its trusted, secure, reliable proposition into these third party applications. That is why it is so dangerous and damaging for telcos to fail at self-regulation in these markets, or fail to be transparent with how they will use customer data. When the user sees a BT or Verizon logo, they need to feel, “Oh, good”, not “Oh! God!”.

A challenge for traditional regulation

Finally, these new markets challenge the traditional assumptions of the regulator. What was previously predatory pricing becomes a necessary prelude to gaining an audience for merchants and brand owners to interact with. What was previously a ‘termination fee’ is now a ‘success fee’ for brokering an interaction. What was previously ‘significant market power’ becomes ‘insignificant market power’ when that business process is viewed in the context of Google, IBM and VISA. Today’s debates around next-generation access will become tomorrow’s debates on who owns and controls the data.

Still, the future opportunity lies where it always has: in connecting people together. Those who execute can look forward to ‘next-generation termination fees’, which look suspiciously like unregulated high-margin monopolies. Indeed, what is there not to like? And why are you waiting?

Posted at 09:57 AM | Link to this article | 2 comments

A TV show called Who Wants to Be A Millionaire is apparently now the most internationally popular television franchise of all time. Its popularity comes partly from the tension created by the huge amounts of money at stake and partly because of its interaction with the audience and with interested parties (‘phone a friend’).

At Telco 2.0 events we also have an ‘Ask the Audience’ format, but the difference is that the audience is also the contestant, the question master and, in fact, the prize giver too. That is to say, the audience (or ‘participants’ as we prefer to call them) represent companies who have a chance of taking a slice of the new $250bn+ platform opportunity, and they collectively can make it happen if they share knowledge and collaborate effectively. The new business model we are proposing is one which ‘floats all boats’.

We’ve already published here a set of FAQs that came out of the event. There is much more brainstorming output from it, the majority of which we keep for those who invested their time, effort and money to come to the event. However, there were also some votes at the event, the results of which are worth sharing here to demonstrate that there is a groundswell of opinion towards the propositions we are making. The votes were on these questions:

• How well do we understand the commercial needs of upstream partners (3rd Parties)? How well do upstream partners today understand the assets telcos have?
• What is the best ‘next practice’ for voice?
• Which approaches to fixed network video delivery will be most profitable 5 years from now?
• How important will new wholesale products be to mobile internet data revenues in 5 years from now?
• What is the best way of competing with a ‘Platform’ play?

Results here:

1a.) How well do we understand the commercial needs of upstream partners (3rd Parties)?

1b.) How well do upstream partners today understand the assets telcos have?

It’s therefore not surprising that we’re not getting better deals from Google, Yahoo and not engaging effectively with all the thousands of upstream 3rd parties who could become our paying customers.

(It’s worth pointing out that a major (potential) upstream customer speaking at the event, Ed Wray, Chairman of Betfair, was very clear indeed about what theoretically a telco could do for his business in terms of authentication services. But no one had ever offered it to him.)

2.) What is the best ‘next practice’ for voice?

This is a key part of the new business model, where we see significant growth opportunities for telcos. It is something that can be done relatively easily, today. (Example here) It was good to see the concept supported by the event participants.

3.) Which approaches to fixed network video delivery will be most profitable 5 years from now?

From the inception of Telco 2.0, we’ve occasionally felt the need to be quite negative around big industry bets that we just don’t think will fulfill the ambition of bringing back the good old days. Yes again, supporting previous survey work, the vision of massive telco IPTV didn’t go down at all well. We asked which strategy for video delivery will be most profitable for telcos in 5 years:

• “Product Strategy” - Telco builds a complete end-to-end own-branded IPTV service (acquires and aggregates content, provides CPE and customer service)

• “Platform Strategy” - Telco provides a set-top-box (with broadband and broadcast interfaces) and content delivery network, and partners with media companies to provide a variety of partner-branded content services and user experiences

• “Pipe Strategy” - Telco builds a content delivery network as part of its broadband network, and re-sells a variety of CPE and content services from Apple, Sony, Sky, etc.

The ‘audience’ was not entirely sure whether it should be a ‘telco-plus’ model, competing heavily on the set-top box, or a ‘telco-minus’ model, competing heavily on distribution and CDN-ing; in a sense, this is a choice between competing in retail and wholesale. But they are at least clear of the relative value of the first strategy. (Lessons for Mobile TV plans too…)

4.) How important will new wholesale products be to mobile internet data revenues in 5 years from now?

This is complex question, but a core one to the new Telco 2.0 business model.

A majority did put the revenue from this at over 10 per cent of mature market ISP activity in 2013, and more than a quarter over 20 per cent. This is an area that we will be creating more detailed use cases and business models for in the coming months…

5.) What is the best way of competing with a ‘Platform’ play?

The last vote at the event was around this question:

In opening up their networks and IT systems for a ‘platform play’, how far up the value chain should operators typically compete? * Simple raw network APIs that others can aggregate and turn into application platform(s)
* Rich application platform(s) (e.g. BT Web21C, Verizon ODI) that others can aggregate (e.g. Microsoft)
* A common interconnected application platform (e.g. how PSTN works with an SS7 API)
* Specific vertical industry platform services (e.g. utilities, healthcare) that industry partners package and sell
* Complete vertical industry solutions

This is a complex and critical issue. We’ll be developing more thoughts on this over the coming months…

Posted at 06:20 PM | Link to this article | Add a comment

Below are our responses to 56 tough questions about the new $250bn+ telecoms two-sided ‘platform’ opportunity generated anonymously in real time by the 200 participants at the Telco 2.0 Executive Brainstorm last month. The questions were responding to the opening stimulus presentation by a Telco 2.0 analyst which boiled down 400 pages of new market analysis into a 25 minute summary.

This rich set of ‘FAQs’ fall into 4 broad categories:
1) Market Opportunity and Structures.
2) Dealing with Google.
3) Operational issues.
4) Technology and Iinnovation.

We will continue to build up this FAQ list as we believe it’s a critical step in helping to increase understanding of the opportunity, refine it and define how to practically realise it.

A C-level exec at one of the world’s largest and most innovative telcos told us yesterday: “There is still too much organisational ignorance and resistance to these ideas. We need a better sales pitch and more details on the practical requirements to make it happen.” Our view is that the best way of starting to tackle ignorance and resistance is to give people the chance to process the ideas for themselves and to openly feedback back their issues and concerns. As a wise man once said:
“Tell me - I forget
Show me - I understand
Involve me - I learn”

The April event’s brainstorming process was essentially a large-scale involvement exercise. We think you’ll find the FAQs below instructive:

The Two-Sided Platform Opportunity - Some FAQs from Telco 2.0 Executive Brainstorm, 16-17 April. (Read this first if you’re new to topic)

MARKET OPPORTUNITY & STRUCTURES:

A lot of people are concerned with issues of market structure - that is to say, how many and how large the companies or other organisations that take part in the future telco market will be, and how they will interact.

Typically, people wanted to know how it would be possible to build enough scale for a future platform to compensate for the crash in margins on voice, and whether the regulators would let them either charge a price that would permit this or else merge into a big enough system to make up the difference on volume. A related issue, which overlaps between markets, technology, and standardisation, is how multiple platforms would interwork - will we need a new standard, a GSM for transactional B2B VAS?

We think not. The models for platform economics are likely to be comparable to the alliances between airlines, or those between banks that operate financial transfer networks and credit-card systems; which suggests either agreements to use a common technical solution and terms of business (like VisaNet), or jointly-owned platforms used by multiple carriers (like the London Internet Exchange). Whilst some large operators may initially attempt to go it alone, a more likely outcome is that of co-operation.

The alternative is for outsiders — existing aggregators, SIs, IT and online companies — to become the platform, with much lower-level interfaces into the operators. The danger is that the operator has very little pricing power in this situation, where they are not a true participant or owner of the platform, just a supplier to a monopsony (single buyer).

Here are specific Q&As:

Q1: What’s new about the 2 sided business model? Isn’t it just an evolution of the existing wholesale model?

A: Today’s wholesale models don’t bridge the retail and wholesale. For example, a smart call centre service (enabled by a two-sided telecoms platform) would allow a customer of the same telco to bypass the ‘se hable espanol’ IVR when they already know your preferred language. Traditional wholesale models just resell capacity, shorn of any end user relationship.

Q2: What’s the user need and problem we are solving here?

A: There is a lot of friction and poor user experience in the purely ‘horizontal’ internet model, just as there was a lack of innovation (if wonderful integration) in the traditional telco vertical model. Fraud, payments, data quality, difficulty of timing rendezvous (missed calls, voicemail, etc) - there are huge numbers of user problems in everyday business processes, just the answer isn’t a telco service, but rather it’s allowing upstream customers who understand their end-user needs to re-package telecoms assets to solve end-user problems.

Q3: I did not find the fedex example that relevant because the Telco networks are open to anyone to distribute content or over-the-top applications, whereas to access fedex you have to pay from the get-go, it is a closed network.

A comment to the above: One has to compare a single Telco operator with fedex and not the global Telco industry: fedex is one of the major players like DHL etc. A national Post Office is also comparable to the incumbent Telcos

A: The important take-away is that there is a difference between the feared ‘dumb pipe’ and the actual reality. For example, upstream partners (e.g. media companies) don’t want to have to deal with the complexity of P2P networks, broadcast caches, CDNs - plus the B2B VAS services like payments, age verification, remote diagnostics and support, etc. The logistics/Fedex metaphor is meant to illuminate the similarities, although there will always be significant structural differences between industries.

Q4: Operator platforms need to be unified to be attractive for the upstream providers, at the moment there are too many visions of the platform play per operator.

A: Yes and no. In some areas, such as advertising, we need to rapidly move towards a common platform and rate card. This is just starting in mobile - an example being in the UK where the biggest networks have agreed to collaborate on this. In other areas, e.g. BT offering business services like SugarCRM, there may be opportunities to open up the platform in telco-specific ways (e.g. integration of BT call centres with CRM offering). There are also probably significant rewards for the larger operators to achieve scale first, creating de facto standards. Plus there may be regional standards (e.g. Personal IM in Nordics). So yes, more co-operation is needed, but that shouldn’t stop anyone making a start.

Q5: Can a Telco as a ‘local’ player compete against ‘global’ internet players - is there a real chance of a ‘Telcos hub’ and ‘user info exchange’ that will pass info between players. How will this be handled from a regulatory perspective?

A: Yes, telcos can and do compete locally. You should also not over-estimate the global reach of Internet players - e.g. lots of strong local players in China (eg. QQ), Japan, Korea. The telco assets are ones often tied to locality - retail distribution, regulatory compliance, location, brand, media partners, etc. The job is one of co-opetition, not competition. Each side needs to trade with the other to mutual benefit. We already have some hubs, such as for bulk SMS, and some emerging around mobile money transfer, so the same structures and rules can be evolved to support a wider range of interconnected services.

Q6: Given need for scale and interoperability, what investments does national Telco have to make overseas to be able to offer application developers global reach? Also could country Telcos hold back btw efforts to offer global reach?

Q7: What about local, small (200,000 cust, for example) Telco’s which will have a bad time negotiating with big players in this new side of business… Should they find (or fund) a middle contractor or concentrate on local/regional businesses (to which they are close and understand better than big Telcos)?

A: There may be a role for small, agile telcos, but this really looks like a space for the big boys. You need scale to operate a platform. They can probably carve out niches in e.g. rural areas, or targeting very specific segments, and insourcing wholesale platform capabilities from other operators or IT players. So you could imagine a next iteration of IBM’s SPDE platform coming with all the relationships you need to do mobile ad insertion, and IBM operates the platform.

Q8: This can only work if the operators and vendors across the world adopt some consistent set of information and interface standards.

A: It depends on the market. Verizon, AT&T and China Mobile are probably big enough to ‘go it alone’ to some degree. Plus many of the technology standards already exist, just the commercial framework around them is missing or inadequate.

Q9: Do operators provide enough scale to be a platform, given that they regionally bound?

A: Yes, in places - see responses above. The critical part is finding the channel partners (e.g. Salesforce.com) who can provide the volume of developers and smooth out some of the differences between operators.

Q9: Would like to see the assumptions on the $250Bn number. Can’t just throw out an exorbitant number like $375Bn and not provide details on the assumptions behind this number. Most external players have eyeball models - how will this $ be created?

A: Chris presented a 20 minute summary of 2 reports totalling 400 pages. All assumptions in there!

Q10: I have a problem with Chris’ forecast, the static Telco retail figures underpin the entire growth of $350Bn. Skype minutes are only 6% monetized hence 94% FREE. That surely diminishes the Telco retail DRASTICALLY.

A: In our model we’ve assumed that the B2B VAS element is incremental but the distribution part of the platform (inc voice) is largely substitutive - this is the conservative approach. Thus the growth comes from selling wholesale access and minutes to Skype, plus Value Added Services to them like enabling Skype calling using your existing prepaid balance. Dozens of different ideas on how to communicate can then compete, with the telco winning regardless. The hidden cost with Skype is getting an ISP plan, and then hotspot plans all over town to get online; it’s only ‘free’ at the margin, and the average rate per minute, properly accounted for, is not insignificant. There’s a clear opportunity for a win-win here, as Hutchison3G UK have shown with the Skype phone on their circuit network.

Q11: How to exit the current mutual price squeezing situation? What is needed to stop competition on lowering prices? What are the key added values that the Telco2.0 model should use to differentiate?

A: You can’t, which is why you need to develop a whole new business model.

Q12: If the Telco is the logistics company and the consumer pays the merchant and the Telco gets paid by the merchant, isn’t there a risk of price erosion to the Telco?

A: Yes, but you make it up with (i) volume, (ii) added VAS. And the alternative is your leaner competitor does it anyway and you end up with nothing. There’s no reason why services like SMS should have 90%+ gross margins forever.

Q13: Isn’t platform business model just a nicer word to describe a ‘pipe’ business?

A: No, it’s far more complex and richer - see comments here and our various blog posts on the logistics metaphor, for example - www.telco2.net/blog.

Q14: Upstream = value-add = margin. To get higher margin, will operators truly embrace a confederated model for innovation in service delivery, or maintain the traditional culture of monopolisation and acquisition. Can the leopard change its spots?

A: It’s interconnected products (PSTN/PLMN voice, SMS) that generate all the money today, and there’s little growth anymore in mature markets - is there an alternative but to look upstream?

Q15: I don’t understand the comment in Chris’s presentation that c99% of core telco revenue is (one-sided) ‘retail’. 20% of revenue and 30% of EBITDA is already from wholesale termination receipts. In the two-sided model are we simply talking about termination receipts for data together with leveraging the metadata?

A: These termination receipts are an interesting case. Ultimately they are almost all being paid for through another telco selling retail services. To avoid double counting, we’ve therefore included them as retail receipts, since there’s no extra wholesale or platform money coming into the telco system as a result. They would therefore inflate (artificially) the retail bucket. However, you could reasonably argue that things like automated call distribution are part of an existing 2-sided model. I can certainly imagine us producing a richer model in a subsequent iteration which accounts for the revenue flows in a more fine-grained manner. Many of these new models, e.g. using presence and location to time an outbound call, or even presenting an ad, can be thought of as “next generation call termination”, and are blessedly unregulated.

Q16: Why will the content providers pay the operators - for example if we buy a Dell computer - why would Dell pay the operator?

A: If you think about the friction in their businesses, you’ll see…We’ve had this conversation with PC makers! They like it!

Q17:Do you see content owners warming up to this model? Major movie houses and broadcasters are still very uptight in owning the distribution model in a very controlled fashion.

A: Well, we saw what happened to the music industry

Q18: What happens to the 2 sided model with the BBC iplayer example giving away free the content? How does the Telco recover costs?

A: That isn’t a 2-sided model yet! Eventually the ISPs will tier out ‘with iPlayer’ and ‘without iPlayer’, and the users will pay for what they use - unless the BBC gets smart and makes allies of the ISPs by throwing them some money. More analysis of this issue here.

Q19: Will we see a mobile payment service with a business model comparable to credit cards or paypal on the mobile (smaller cut to operator)? Which operator dares to be the first?

A: We already do, with Felica in Japan, which is spreading to other markets.

Q20: With operators competing so aggressively amongst each other, what supplier power do they hold over upstream customers?

A: Think of the platform as the ‘next generation termination fee’, but unregulated - you’ve subsidised the retail customer with handsets and discounts to come on board. Now the only way of getting to that customer is via the telco, so there’s no choice - a very localised form of significant market power. So you might charge 1p/min termination fee to the customer, but 10p to a merchant to leave a voicemail directly in the users inbox without the phone ringing (and annoying them), and 50p for a ‘smart’ voicemail that would be a Voice XML document with an IVR embedded to allow them to order the goods by pressing 1 etc.; check out the ‘communications enabled business process’ space, and think through the many ways the operator can use location and presence to help the timing and nature of interactions, and you can see a huge untapped opportunity.

Q21: What will be the tipping point for operators to adopt the platform model - and how will platform competition pan out - what is to stop this being commoditised in the same way as core revenues? Is there opportunity for a monopoly platform?

A: There is growing interest in this concept right now. But it is just building up. Very early days, but there is a realisation that something needs to be done. In the last Telco 2.0 industry survey, 55% of 800+ respondents said we needed a new business model. 20% said pure ISP was fine, and 25% said triple play was fine.

Q22: How do we exploit without getting public and watchdog groups to get too excited? Last thing we need is more regulation.

A: Go manage expectation now, start to educate the regulators. In particular, 2-sided models may require retail rates that are ‘predatory’ in the traditional model, but vital to creating volume for the upstream side. What happens when Blyk-like models spread everywhere?

Q23: What are the implications for platform competition - is one platform enough? Any thoughts from ofcom?!

A: There probably will be many competing, overlapping platforms, not one monolithic one. Maybe like the airline clubs - Star Alliance, OneWorld, etc [see also comment above introducing this section of the FAQs]

Q24: The transition requires huge investments. With current constraints how can the Telcos practically ramp funding to transition to the 2 way model?

A: We think there will be a lot more consolidation, and a lot of the investment heavy lifting will come from IT players - who will justly extract their share in return.

Q25: What is the channel partners’ clear role?

A: The channel ecosystem is quite complex, too much to describe here, so we’ll be covering that in our next report on executing on the opportunity.

DEALING WITH GOOGLE

‘Google’ is in the list of FAQs for the very good reason that quite a lot of respondents’ questions could be summed up as “Won’t Google do this first? How can we compete with Google? Will Google actually run private telcos in each of its major markets?” To answer this, you have to realise just how big, and expensive, the telecoms infrastructure is; we’ve pointed out before that there is simply not enough advertising in the world to solve the industry’s problems, even if we captured 100 per cent of it. Further, telcos have highly unique information assets.

Q26: Google, with gmaps, is already accessing user data. What kind of user information is Google ready to pay for and not able to access without the help of the MNO?

A: When presenting the contextual adverts, Google would love to know which freephone number you’ve called, which demographic group are you in, which web sites do you access. Today Google is shooting blind with the ads. The telco can also take the pain and friction out of distributing Google Maps to cell phones, making ‘click to call’ seamless, making it easy to put called vendors into your address book, integrating address book search with google search, etc.

Q27: How do Telcos make sense of this artificial notion of platform with a FOOTPRINT, we already have a platform that is EVERYWHERE, its called THE INTERNET…?

A:..which has no payment mechanism, no identity mechanism, is a cesspit of abuse and fraud, no deployed bandwidth-on-demand mechanism, no promises to keep… there are good reasons why we still use telco networks!

Q28: What are the network elements that operators own that are best in the core and can’t be duplicated by others? For example, we talk about locations, but Google has figured out how to do this. What’s left?

A: The others find it hard to ‘slice and dice’ connectivity and package it up with applications and devices. Expecting the user to buy a $40/month unlimited ISP plan with every device, or location they frequent, just doesn’t cut it. Plus these others simply don’t have the breadth and depth of data the telco has - see the event handout pack for more details.

Q29: ‘It is vital that we integrate alongside of new apps’ — yeah, but Google says they don’t really need you. They are content with over the top service. They don’t need billing. You can’t sell CPE. All you have is QOS, but then that is passed to consumers, who want flat rate.

A: Not true. Chris described the key things that Google envy about operators, also how much Google is currently paying out to other partners. More on Google vs Telcos here.

Q30: What’s in this for the upstream companies - particularly the content players - I see why the Telco needs them but why do they need the Telco when they already have many of the assets (customer profiling data, presence in the case of Google)?

A: They don’t have the same data, they can’t package up distribution with their service, and they can’t handle money!

Q31: Given Google’s success revolves around KILLING ALL THEIR ADVERTISING COMPETITORS like WPP, Omnicom, HAVAS, IPG, Publicis who are ALL under th