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July 27, 2009

Ring! Ring! Hot News, 27th July 2009

In Today’s Issue:

Strategy: The spoils of Nortel; why would RIM want to be Nortel 2.0 anyway? Ericsson the winners so far; reasons to be cheerful - AT&T spending on infrastructure again; the iPhone sends waves through AT&T’s balance sheet; Zain/Vivendi deal off, revenues up; Ahuja and friends launch WiMAX startup; East Africa online; Core Services: Data traffic booms; NSN reckons it will exceed voice by 2011; mobile broadband subscriber numbers; Vodafone results down despite data surge; America Movil results up because of data surge; O2 UK’s nightmare week; HOWTO get US Federal broadband funding; Quigley picked to run Aussie NBN; B2B Platform: KCOM in trouble over war on filesharers; Will Page: music industry actually OK, really; Apple considers iTunes-focused tablet; Enablers and APIs: Rackspace, the latest API-enabled cloud; Technology and Devices: Avaya in pole position for Nortel voice assets; NSN opts for Alvarion’s WiMAX kit; WiMAX trouble in Malaysia; Ericsson chief promises to back Sony-Ericsson; ZTE: SDR-based LTE/CDG Node B; Telus prepares for CDMA-LTE leap; SpinVox is people!; 26% of Chinese crooks wannabe hackers; no wonder, when it’s this easy; Symbian-approved virus spreads by SMS; Apple breaks Palm Pre-iTunes sync, Palm unbreaks it; Nokia buys super-address book startup; a watch in a phone in a watch

The vultures swirl around Nortel. And sometimes they turn on each other…RIM complains bitterly that it’s not getting a fair chance to buy the core CDMA and LTE assets; Nortel says they can only bid for them if they promise to buy more assets after that; RIM wraps itself in the flag and claims that it must keep these strategic assets in Canadian hands. Meanwhile, one of Nortel’s creditors threw in a low bid for the assets, Nokia Siemens Networks made an offer…and Telephony Online asked why RIM wanted to become an underscaled infrastructure vendor, just like…Nortel.

Good point; they reckon it’s because they are thinking of licensing Nortel’s patent portfolio, which is impressive, to other manufacturers in a business model similar to that of Qualcomm, or rather, Qualcomm in its CDMA glory days. But even as the row went on, Ericsson was preparing to double NSN’s bid and beat RIM and Matlin’s offers as well; it looks like that will seal the deal, barring an intervention by the courts.

So Ericsson stands to get the key mobile and switching assets; Avaya has bid $450m for the enterprise voice/unicomms ones, which would make them the market leader ahead of Cisco. That only leaves the optical and WiMAX stuff; perhaps somebody will find those missing Alvarion base stations in the end. Speaking of them, NSN has opted to resell Alvarion WiMAX gear rather than make its own; it’s clearer than ever that only the specialists are succeeding in WiMAX.

The Malaysian government, meanwhile, isn’t happy with its four WiMAX licence holders, only one of which has actually launched.

Ericsson is forking out over a billion dollars for the guts of Nortel; at the same time, it’s facing ugly results at Sony-Ericsson and more losses at the chipmaking joint venture STEricsson. In an interview with Handelsblatt, Hans Vestberg promised that Ericsson will go on backing the handsets operation and may even invest more money in it.

There are some reasons to be in the infrastructure business; AT&T is planning to increase its CAPEX in the second half of 2009 by 35 to 50%, as it rolls out HSPA and upgrades its backhaul to cope with soaring data traffic from all those iPhones. The Jesus Phone continues to cause upheavals in the industry; AT&T’s results also demonstrate a strange pattern, as each new version of the device causes their margins to dive as all that handset subsidy gets paid out, and then the margins come surging back with the data traffic.

Which, according to EITO statistics, has never been as high before. No surprise there, but the more interesting point is that the world recession hasn’t stopped the traffic boom or even slowed it down noticeably. NSN reckons that data traffic is going to overtake voice traffic sometime in 2011. But will data margins pass voice going up, or coming down?

Interestingly, the same telecoms.com report mentions that Informa Telecoms & Media’s figures show there were 225 million mobile broadband subscribers as at March, 2009; but NSN claims it has just gained its 500 millionth data subscriber. But there can’t be that many networks out there that don’t at least provide GPRS now, and NSN’s market share is very large; so this figure seems either high, if it doesn’t count GPRS, or low, if it does…

The promised Vodafone numbers were published, and they aren’t great; Vodafone UK’s revenues were down 4.7% in the first quarter, and 4.8% for the whole of Europe, despite the surge in data traffic. Interestingly, VF also announced that prepaid churn in India was only around 25%, compared to 57% for the UK.

ZTE has announced a base station capable of both LTE and EV-DO Rev.B, the rough equivalent of HSPA in the old CDMA world. Whether this will be particularly important is very doubtful - after all, Telus is about to join the club of carriers who’ve gone over the wall from CDMA to LTE - but it does show the flexibility that software-defined radio technology brings.

In Australia, meanwhile, plans for their national fibre network are moving ahead. This week, the government announced some of the first places that will get the service, and tapped Mike Quigley as CEO of their loopco. Remember him? Sure ya do; the man who would be king of Alcatel, called up from Australia to become Serge Tchuruk’s eventual successor, before being sidelined in order to make room for the Lucent monstermerger.

Industry rumours at the time said he’d never actually visited head office in Paris, having made his career in Australia, Asia-Pacific and North America; this was probably a myth, but it was no secret that a lot of people were shocked by the idea of an Anglophone boss. That was presumably nothing to the shock they got a few years later…

In the US, crafty broadband monkeys have discovered that it might be much easier to get government funding for public networks than they thought. The Feds came up with a definition of “underserved area” that set fairly strict requirements for anyone who wanted money; but it turns out that this definition is actually a definition of “underserved”, not of “area”. So, all you need to do is find somewhere that fulfils the definition of “underserved”, and add it to the area you want to deploy in…

Don’t assume community broadband solves anything, though; Kingston Communications, the unique telecoms operator in the British city of Hull, has been forced to change its draconian policy of terminating anyone they suspect of filesharing after a user revolt. Hilariously, they were actually more anti-filesharing than the British record industry lobby.

On that subject, friend of Telco 2.0 Will Page, the MCRS-PRS’s chief economist, has been crunching the numbers again; he concludes that the music industry is actually growing, with a declining recording business more than compensated by a booming box office business. In other “we were right” news, Ernst & Young concludes that telcos are well placed to ride out the economic crisis. Thanks!

Hosting firm Rackspace is the latest cloud computing player to offer an open API. Telephony Online reckons this is likely to be a further force pushing carriers to embrace Telco 2.0…

Zain announced much improved results for the first half, with profits up 4.4% and EBITDA up 46%. Etisalat is apparently interested in taking a 51% stake, thus creating a large Gulf-based telco with both sinister authoritarian tendencies and far-flung, lossmaking interests in Africa…what could possibly go wrong? Vivendi, meanwhile, pulled out of discussions about buying into their African operations. America Movil announced revenues up 11% and EBITDA up 13.4%, driven by growth in data traffic, although subscriber growth is slowing.

Former Orange execs led by Sanjay Ahuja announced details of their start-up, Augere, which aims to deploy WiMAX networks across the emerging markets; something of a crowded market already, you might think. The first deployment is planned for Bangladesh, with Pakistan and Uganda coming up next. In Tamil Nadu, meanwhile, BSNL is about to deploy WiMAX.

Which raises the question; what will they do with it? The SEACOM cable landed in East Africa this week; business Internet costs are expected to fall by a factor of 10 as a result. We suspect a wave of call centre outsourcing is on the cards; after all, that turned out to be SpinVox’s secret sauce.

It’s a risky business, though; a poll of would-be Chinese criminals discovered that 26% of them want to be hackers, more than any other specific crime. The options included “Freelance Hacker, Human Trafficker, Assassin, Drug Dealer, Gambler, Gang Leader, Spy, and Robber”. One wonders how, exactly, you get a statistically valid sample of would-be Chinese criminals, though.

The iPhone’s encryption turns out to be hopeless; and a worm which attacks Symbian devices is spreading via SMS. The killer detail? It passed Symbian’s signing process.

The Electronic Frontier Foundation has successfully sued Apple over its attempts to silence an unofficial effort to document how iTunes and the iPhone sync. Last week, Apple pushed out an update to iTunes to stop people synchronising their Palm Pres with it; this week, Palm updated the Pre to make it work again. The ball is again in their court.

One of the Pre’s most popular features is its fancy address book, which will integrate with Facebook after this week’s software update. Nokia apparently would like something similar; they’ve acquired instant messaging/social network firm Cellity. We shall see whether this prospers or becomes one of Nokia’s many, many shuttered acquisitions.

Speaking of failure, it’s been a very bad week for O2; first, their UK data network suffered a major outage when it failed to issue IP addresses to mobile users, and then, their roaming service broke down entirely. Users affected by the first outage could apparently work around it by using a slightly different access point name.

And chatter is building up around the idea that Apple might launch a tablet/netbook/smartbook device at the end of the year. The interesting bit, and the hook of this Financial Times article, is that it might be linked with some sort of content offering through iTunes; at the moment, Apple uses iTunes to sell hardware, but the nice thing about a two-sided business model is that you can also flip it and use the hardware to drive sales through iTunes…

Finally, is it desperately sad that we quite like the look of Samsung’s touchscreen watch phone?

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July 23, 2009

Twitt-o-nomics: Can Twitter ever make money?

Twitter’s business model seems to be the familiar - “Web 2.0 Flip” - build an audience and sell to someone who thinks they can monetize it. There are key lessons to be learnt from Twitter for Telcos and other service providers.

Our analysis shows that Twitter:

  • Has built its success on its ability to serve the fundamental human need to participate
  • Has built a big user base on a low-ish cost base
  • Does not yet appear to have a credible plan for attracting or growing revenue
  • Has made a strategic commercial error on APIs during its rush to scale
  • Enables 3rd party messaging services using the free API that could cannibalise SMS revenues thereby destroying value
  • Will probably need to be sold soon to a buyer with a suitable revenue model in mind to maximize value

Introduction

Twitter is the current Social Network Service (SNS) flavour of the day for the media. It has been promoted for diverse causes: from the rallying call for Iranian government opposition to a public diary of Hollywood stars’ hourly insights into life. It’s appeal to and massive success with users is rooted in the need to participate (analysed in-depth in our new report “Serving the Digital Generation”).

To other people calling Twitter a service is a stretch of the imagination. In its current form it is only accepts messages, of a maximum 140 characters, and publishes them to a list of subscribers. Despite this simplicity Twitter has managed to attract US$55m of Venture Capital funding and is the constant source of speculation as to whether Facebook, Microsoft, Yahoo, AOL or Google who ultimately purchase it.

In this note, we explain how the rush to build scale without a focus upon on any underlying business model is extremely risky. It can lead to unintended consequences and allows both partners and competitors to capture the value chain - leaving little value for your service and your investors to capture.

In our opinion, Twitter has to move fast before any value within its network is destroyed and probably management’s best option is to sell the company now and leave the problems of revenue generation and competition with the internet players to someone else.

The lesson from previously popular social networks such as:

  • Bebo, bought by AOL;
  • MySpace, bought by News Corporation; and even historically
  • Friends Reunited, bought by ITV

…is that timing of exit is of paramount importance.

A little bit of History.

For five years from 2001 Twitter founder Jack Dorsey mulled over how to distribute status information. At that time, the major instant messaging services, such as AIM and ICQ, had status features but distribution was limited to PCs and internet connectivity was limited to the home or office. Dorsey figured that the real value in status information was when delivered to the mobile phone. People could see in real time what was happening from anywhere.

Early Design Document for Twitter

Fig 1: Early Design Document for Twitter

This is a dream shared by many mobile operators which have repeatedly tried many different approaches - from failed mobile instant message clients to the new rich communications suite (RCS) vision. We have noted our concerns around RCS before.

Even Google has struggled with mobile Social Network Services. In 2007, Google bought Jaiku for an undisclosed amount. Jaiku offered a similar service to Twitter. In 2009, Google closed the Jaiku service after the service failed to build momentum and gain scale.

SMS as a delivery mechanism

By 2006, the founders had figured out that the perfect medium for delivery was of course SMS. A little further brainstorming led to the name Twitter and the company was launched.

It is important to recognize that the service was able to be launched for “free” in the USA, because the USA carriers adopt a “receiving-party-pays” model for charging. The subscriber to the status updates, or tweets as they were now called, was paying their carrier for delivery.

Across, the pond in Europe with the “sending-party-pays” model, Twitter had to pay the carriers for delivery. As popularity grew in Europe, the costs grew proportionally. In August 2008, rather than lose its “free” tag, Twitter turned off SMS notifications in the UK. A golden rule of internet economics is to keep variable costs to a minimum. Updates to Twitter via SMS were still permitted with the user paying for sending texts and the cost to Twitter zero.

The Trials and Tribulations of Technology

The beauty of having such a simple service is that theoretically it shouldn’t consume a lot of compute resources: both bandwidth consumption and storage requirements are extremely limited; and there are not a lot of complex calculations to place processors under strain.

Nevertheless, scaling applications to serve a large community is tricky and Twitter has had its fair share of downtime. Admirably, Twitter doesn’t hide from its availability challenges and publishes statistics for its web-based service - see below.

Twitter publishes statistics for its web-based service

(www.pingdom.com/reports/wx4vra365911/check_overview/?name=Twitter.com)

Twitter also faced problems interfacing to the original home of status messages - Instant Messaging Services. Microsoft, Yahoo and Skype are closed systems and Twitter has never interfaced to them. However, Google services are open and based upon the Jabber protocol. Twitter had an interface with Jabber and then didn’t have one. To us at Telco 2.0, often of the view that Telcos are slow to embrace interoperability, it is somewhat ironic in this case that Telco services such as SMS are far more open and easier to interface to than some of the darlings of the internet world.

One thing that Twitter hasn’t done is recruit an army of technical resources to solve its problems and expand its features. The recently leaked Twitter internal documents reveal a total company-wide headcount forecast to be only 65 by Dec 2009. At the end of the day, coding volume is directly proportional to volume of bodies and brainpower thereof. Twitter doesn’t seem to have a lot of technical bodies available and their technical output is constrained.

A Flawed API Strategy?

The set of Twitter APIs is probably the key reason that Twitter has managed to keep its headcount so low. Effectively, third parties have built on top of Twitter simple messaging service and built richer clients and extended the functionality. For an indication of relative volumes, the APIs attract at least ten times the traffic of the web.  One of the Twitter founders, Biz Stone said “The API has been arguably the most important, or maybe even inarguably, the most impor­tant thing we’ve done with Twitter.”

Many people salute Twitter’s approach to APIs; however we believe that Twitter’s API strategy is flawed - we believe that APIs always need a business model. The sole rationale for the Twitter APIs seems to be growing fast without increasing the headcount. That is a benefit - but comes with a high probability of value (i.e. realisable revenues) leaking away from Twitter, the provider of the API, to the consumer of the API. This can make sense when there is plenty of revenue to go round - everyone wins - but less so when the revenue count is low or zero, and especially without a clear and credible plan to change that.

A recent in depth study of the use of Twitter by 11.5m people in June 2009 by Sysomos illustrates the potential for value leakage.

Marketing share of publishing tools

The rest of the article, covering:

  • Market share of Twitter publishing tools
  • The Dark Side of APIs - Value Destruction
  • The Publish-Subscribe Hub Model
  • Twitter’s grand penetration plans and revenue ideas
  • Conclusion and Key Lessons for Telcos and Other Service Providers

…can be read by members of the Telco 2.0™ Executive Briefing Service here. Non-members: please see here to subscribe.

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July 21, 2009

Case Study: Mobile Signature solution approaches key growth milestone

Remember Mobile Signature, a product deployed by Turkcell that we covered in a case study back in May, 2008? Developed by Valimo Wireless, it’s an identity/authentication system that uses a 2-Sided Telco business model to reportedly raise messaging ARPU by 20%. It is approaching a major Telco 2.0 growth milestone of achieving inter-carrier operability on Digital ID. This article reviews recent progress and outlook, how Mobile Signature works, the total opportunity, and the 2-Sided principles it embodies.

An Elegant Solution to Real ID and Cryptographic Problems

Mobile Signature uses an application resident on the SIM card and a remote server controlled by the operator to provide two-factor authentication for online or offline transactions. Briefly, when you set it up, it creates a public-private key pair and registers you with the operator’s server. When someone needs to check that you are who you say you are, they call a Web service API, which has the operator send you a challenge. The application asks you to enter a password to unlock the private key, and signs the challenge before returning it; then the transaction goes ahead. Your secret is never transmitted over the network.

This gets round two of the classic problems in cryptography; it’s all very well having a public key and being able to digitally sign a message, but this only proves that someone having that public key signed it, not necessarily that you signed it. Various solutions exist, none of them satisfactory; public-key infrastructures (PKIs) have the keys signed by some sort of issuing authority, whose key signing key is itself signed by some other authority in a hierarchical structure, but this relies on the infrastructure’s existence and that all the authorities in the certificate chain remain trustworthy.

Alternatively, systems like PGP use a so-called web of trust, in which individual users vouch for each other, but this has an obvious scaling problem - it’s only useful to know that Mr X vouches for the fact that 8EF5T3ZK0 is Mr Y’s key if you know who Mr X is and what his public key is, and the more people Mr X vouches for, the less likely he is to be absolutely certain of each one. On the other hand, it’s necessary for individuals to be vouched for by as many others as possible, or otherwise attackers could conspire to sign each other’s keys as different people.

In this case, the key is associated with the operator’s billing record, which should usually mean somewhere they can collect money from you. And for most commercial purposes, this is what you need - the ability to collect on the other guy’s half of the contract, not their identity per se.

The other key crypto problem this solves is the danger of a man-in-the-middle or replay attack, where the attacker poses as one of the parties to the transaction and either intercepts your authentication credentials - PINs, passwords, etc - for later use, or attempts to repeat the log-in at the same time. Mobile Signature handles this by carrying out the authentication on a different communications channel to the original transaction, for example via your mobile phone when the transaction occurs on the Web or through an in-store merchant terminal. So, even getting full control of the user’s PC or the merchant terminal won’t guarantee your ability to steal; either the challenge would come from the wrong person or for the wrong amount, and be refused, or else it would come to the user and give away the fact that someone was trying to use their credit card details.

The Business Model

So what is the business model? For the operator, it’s incremental messaging revenue; in the first deployment, with Turkcell, the identifications were charged at the same rate as text messaging. According to Turkcell, this resulted in an average of 21 extra messages a month for each user who signed up for Mobile Signature; as a typical user sent 95 messages a month, that amounts to a 20% boost to messaging ARPU. Of course, if it was possible to gear the pricing of identity services to the size of the transactions they support, there would be the possibility of truly fascinating margins.

Obviously, it’s critical to get as many customers on board who will accept Mobile Signature as possible; it’s a two-sided market, with the telco acting as the facilitating platform. As such, partnerships are crucial. Turkcell took the sensible option of signing up the banks first, being heavy users of identity/authentication with mass customer bases who face a constant threat from fraud. They stand to reduce fraud losses and reinforce their customers’ confidence in their security; it’s worth pointing out that, as with most two-sided markets, it will be a delicate judgment whether the platform can charge both sides or whether it has to subsidise one side.

Authentication enables a huge range of business opportunities

So what’s happened since May 2008?

In a nutshell, “more customers”. As well as the launch customers, Turkcell and Telefonica, Valimo can now claim TeliaSonera, Telenor Sweden, Elisa, and Mobitel Slovenia as customers, plus a significant IT systems integrator (Tieto) and the Finnish Slot Machine Association. This last may seem a little bathetic, but it’s more serious than that; depending on whether legislation on the status of digital ID passes the Finnish parliament, a national roll-out with all three Finnish GSM networks and a line-up of banks is planned for next year.

This would be the first interoperator digital ID deployment in the world, and a major milestone in Telco 2.0. It involves inter-carrier cooperation to create a major new platform, transactional VAS for business, and a two-sided business model which sets out to attract the upstream customers first in order to build scale and create the value that will attract the customers on the other side.

And it’s a direct attempt to execute on one of the key capabilities we’ve defined as areas of opportunity for the telecoms industry - identity and authentication, which creates a thin layer of value across a huge area of the economy.

The Opportunity

id-money.png

In the 2-Sided Business Models report, we estimated that the market for ID/authentication services in Europe and North America might reach $15bn a year by 2017, based on our analysis of key vertical industries. Interestingly, and tellingly, it seems to be around the fringes of Europe that Valimo’s product is getting traction; perhaps there might be even bigger opportunities in the BRICs?

We’re currently working on a new report detailing the most interesting Telco 2.0 Use Cases and Case Studies from around the world (please email contact@telco2.net for more), and this will be a key subject at our events in EMEA in November and the US in December.

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African Communications - Waves of Investment

The outlook for the African Communications Industry is uncertain, at best. For sure, there is currently massive infrastructure investment across the continent. And this investment not only covers mobile technology, there are also major fibre and satellite projects working towards bringing the internet to the population. But a storm is brewing: major African players, such as MTN and Zain, are reassessing their corporate strategies; in-country consolidation in mobile looks inevitable in several countries as too many players have been licensed; and the business case for mass market internet services is unproven.

However, the lesson learnt from the mobile expansion through the continent is that innovation will flourish. This innovation is not only seen in products such as M-PESA, but also in business models. Africans seem not to be frightened and are innovating with their own business models for their own environment as well as adapting the tried and trusted business models which work in Western Europe. This article discusses some of the structural problems in some markets, examines some of major players and explores the new projects.

One Continent, Many Countries

African is a huge continent with a population close to 1bn and over 50 countries. Populations vary from Nigeria at 148m to Equatorial Guinea at 0.5m. GDP/head varies from the oil-fuelled Libya at US$8,300 to the war-ravaged Liberia at US$130. Importantly for Telco’s each country has a different regulatory framework, taxation regime and competitive intensity.

kmm-africa-table.png

The rest of this article covers:

  • The positions and strategies of Zain, MTN, and Vodafone in Africa
  • The impacts and opportunities arising from new satellites and subsea cables

It can be read by members of the Telco 2.0 Executive Briefing service here. Non-members can subscribe here.

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July 20, 2009

Marketing Forum, Munich, 28-30 September

We’re delighted to be supporting NSN’s ‘Marketing Forum’ event on the 28-30 Sept in Munich at the Hilton Hotel. Readers of this blog can register for free, go to www.nsn-marketingforum2009.com. Username: Your e-mail adress; Password: marketingforum2009. The event coincides with the Oktoberfest so there’s an additional incentive to make the trip.

nsn_mf09_BANNER.png

More details below:

Discover innovative ideas to help you to survive and thrive in today’s tough communications markets. Have your say in lively interactive discussions with world-renowned experts. Compare best practices with your peers.

Building on our popular and successful forums of previous years, we want to make this year’s event even more thought-provoking. We will focus on three main themes:

• How you can make positive use of ‘risk’ to capture new markets

• How adding value outside your core business can create new revenues with new service launches

• How communities are affecting the marketing of services.

Spread over three days, the Forum is a mixture of presentations, workshops, demonstrations and social events and kicks off on the first evening with cocktails and dinner.

Several world-class speakers will be attending, including:

• Dan Gardner, international best-selling author

• Jonathan MacDonald, CEO of JMA

• Simon Torrance, CEO & Founder, Telco 2.0 Initiative

• Gerd Leonhard, leading Media Futurist

Key Operator speakers to be confirmed soon.

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Ring! Ring! Hot News, 20th July, 2009

In Today’s Issue: More app stores, but Symbian has a giant app distribution warehouse just off the M25; Nokia sells key Symbian unit; awful figures; another service strategy…; NSN gets $1bn Brazilian contract; Palm Pre syncs with iTunes, Apple rushes out update to stop it; Pre SDK away, hooray; Google’s voluntary total surveillance project for iPhones; 1.5bn downloads from App Store, most intended to replace native applications; wall of money hits iPhone games; Google Voice for Android; Sony Ericsson - the horror! the horror!; embarrassment at Motorola; Frenchmen threaten to blow up Nortel plant; operators “can’t stop now” on infrastructure spending; IBM detects “nanoscale green shoots” with new electron microscope; Spinvox offers shares rather than cash; O2 Germany intros “Comes With Malware”; Etisalat hacks BlackBerries, gets caught, lies about it, sees profits rise 10%; 3UK wants to advertise on dongle clients; Alierta skates from insider trading charge; even more highly doubtful piracy stats; is YouTube actually profitable?; the coming CDN boom; cool new TV box comes to Britain; C&W shareholders furious; simple ad spot prevents Federal broadband funds being paid; Telstra loses case over price hike; Thailand, Angola laying fibre; new hybrid HSPA/satellite network; loads of data on HSPA; fixed-mobile collision hurts BSNL; desperately seeking a voice solution for LTE; users considered intelligent in Wi-Fi study; 36% want mobile iPlayer; VZW cuts exclusivity before the Feds do; Vodafone to update on cost cutting this week; who will be Amazon’s pet MVNO in Europe?; O2 launches prepaid VISA card; Biz Stone says…something

Yet more app store noise. Well, not quite.

More details are emerging of the forthcoming Symbian app store, Horizon; in fact, it’s not going to be so much an app store as a giant app shed near a motorway junction in Wiltshire, delivering truckloads of apps to stores all over the world. Not necessarily a silly idea; the plan is roughly that Horizon would be a single buyer from developers, taking care of technical support, signing and certification, and distributing revenue share, and selling wholesale to operator app stores. Presumably, the Ovi Store is going to be a front end for the project. That would make sense; but then, when has Nokia’s services strategy ever made sense?

There’s a little more at the Symbian blog, if you can get past the queue of people complaining about their code-signing process (see the comments here too). Curiously, Nokia just sold the Symbian Professional Services unit, responsible for customer support of the OS at a fairly hardcore level, to Accenture.

Nokia also had results out this week, and they were frankly horrible; profits were down 74%, shipments and average prices fell, but they did cling on to market share. This is roughly what we’ve been expecting ever since this year’s MWC; a horrible year in general, but with the mid-market (i.e. Motorola and Sony Ericsson) taking the brunt. Oli-Pekka Kallasvuo says that they are planning to “accelerate our strategic transformation into a solutions company”, which probably means another services strategy before the end of the year. NSN seems to be doing OK with its tried and trusted “selling stuff” approach; they snapped off a $1bn contract to run Telemar’s network in Brazil this week.

There’s a slightly different take on Nokia’s results here, with the argument that the whole handset industry is barely economic; however, we think we’ve found the flaw in netting off Nokia, Apple, Samsung, and friends’ profits against Moto and Sony Ericsson’s losses…

Meanwhile, Apple updated iTunes to break its compatibility with the Palm Pre; unexpectedly, users found that the device would happily synchronise with their desktop iTunes playlists, which did not make Apple happy at all. Especially not given that the Pre’s list price is about half of the estimated BoM for an iPhone. Perhaps not the best news for the week the Palm Pre SDK was launched.

iPhone users, by the way, can volunteer to tell Google exactly where they are and get better search results. And 1.5 billion apps have been downloaded from the App Store; but it’s surely a little embarrassing that the No.1 hit is Opera Mini, the well-known alternative Web browser.

We thought the browser was meant to be the heart of the iPhone, but it seems that the most likely application to be installed is…a replacement browser. Further, the second and third most likely are Nimbuzz and Mig33, two over-the-top instant messaging clients. More challenges for telcos.

This hasn’t stopped a wall of corporate money from sweeping into the iPhone ecosystem. Meanwhile, Google Voice is now available for Android devices.

We mentioned Sony Ericsson. They had results out as well, and if the Nokia ones were bad, these were nightmarish. Not only is the company losing money hand over fist, but shipments are down 43% year on year. Management reckons the total handset market is down 10%; back in February our sources thought much the same, with smartphones and ultra-low cost holding roughly steady and therefore concentrating the pain in the middle.

On the network side, we’ve already seen Nortel Networks go under, and Motorola isn’t looking too well; they tried to manipulate a poll at Telecoms.com, but only succeeded in drawing attention to the fact that six people at HQ in Illinois think the last vendors standing will be Huawei and Ericsson.

In France, employees at Nortel’s Chateaufort site, which includes GSM-R development and outsourced network management for Bouygues, are threatening to blow up the building if they don’t get either a buyer or their redundancy payouts. There’s an interview with their leader here, who alleges that Nortel transferred all the French unit’s cash to Canada immediately before going into Chapter 11.

In less grim news, Infonetics estimates that the infrastructure market actually grew 8% in 2008-2009, for the rather telling reason that major operators are committed to extensive investment in network transformation and can’t stop now.

That sounds like a rather pale form of optimism; but IBM’s results this week had considerably more beef. Profits were unexpectedly strong, with the best performance being in outsourcing and the worst in consulting; IBM expects a strong upturn in the second half of the year.

On the other hand, everyone’s favourite voicemail transcriber SpinVox is offering its staff shares in lieu of salary, whilst vigorously denying that it is short of cash.

There’s also been some malarky at O2 Germany, where a batch of new Toshiba phones have shipped with viruses pre-installed. The devices in question run Windows Mobile, which may not be as surprising as The Register thinks. The virus is apparently living on the memory card supplied with the gadget, and according to user reports, it tries to install itself on your PC if you connect the memory card to it. There is no information on what kind of virus it is, but it does seem that Kaspersky AV will detect it.

In the UAE, meanwhile, BlackBerry owners received what claimed to be a “network compatibility update” from carrier Etisalat; in reality the update was a trojan which copied all their e-mail to a server controlled by the carrier in order to let the government spy on them. The lone server wasn’t quite enough, it turns out, to process all the BlackBerry traffic; as a result, the trojan kept retrying, hammering the gadgets’ battery life. This caused someone to examine the actual code Etisalat pushed out - at which point all hell broke loose. Inevitably, the hackersphere came up with a utility to remove it automatically, at which point you only need to worry about the Canadians and the central BlackBerry servers in Waterloo…

For all that, it doesn’t seem to hurt their bottom line; net profits were up 10% against the corresponding period last year.

Why do operators like those annoying little software clients that autorun when you connect a USB dongle to your laptop? Because you can sell advertising space on them, or at least that’s so at 3UK. Those of us who use wvdial to control dongles are presumably exempt.

And Telefonica’s Cesar Alierta has been cleared of insider trading cigarette company shares (that’s two whole levels of dodgy!), on the grounds that too much time has passed since the alleged offence. The great British public, meanwhile, are all evil pirates. Or rather, 43% of them are. Or, in fact, 44% of the ones who regularly download stuff from the Internet have downloaded something without paying for it at least once, but that’s including downloading things that are actually free. Just another day in highly dubious piracy stats, then.

On the subject of video, a huge story in the Financial Times; Google has been reviewing the management accounts for YouTube, and they think it’s about to turn profitable. And how are they doing it? By increasing the share of the videos that actually carry ads. Take that, Well-Known Investment Bank! We’ve blogged about this here, here, here, and most recently here.

Meanwhile, InStat reckons the CDN business will double in value over the next five years as more and more TV gets distributed that way. So it must be time for better CPE, the other half of the video distribution system. And here it is: FetchTV, a box that integrates several different sources of Internet video (notably the iPlayer) and Freeview digital terrestrial TV with a 160GB hard disk to stash TV content in. It can also act as a home media server and talk to an external HDD if you need even more storage. The manufacturers don’t like the BBC’s Project Canvas - which is surprising as the device sounds like a candidate.

There’s trouble at Cable & Wireless, where 38 per cent of shareholders refused to back the remuneration report, concerned at the sheer cash it offers the carrier’s executives. But if you think that’s dodgy, look what David Isenberg found in the US Government’s NOFA, the official announcement of the broadband element of the stimulus plan. It seems that one of the criteria for paying out to new broadband projects is the service advertised in the area; so the incumbents can block payouts to potential competitors simply by running some TV spots. Whoops.

In Australia, Telstra failed to get the regulated price of its wholesale services raised in a major court case. And in Thailand, they’re deploying fibre-to-the-home, through the simple plan of using the existing electricity poles. Even Angola is getting the fibre out there, admittedly backbone rather than access…

TerreStar, which is building a hybrid satellite/HSPA network in the US, has launched its satellite into geosynchronous orbit; meanwhile, there’s a informative article at telecoms.com on HSPA rollout, with a lot of useful data.

Indian state telco BSNL saw profits fall, as 727,000 of its fixed line customers went mobile and the costs of building 3G and WiMAX networks began to make themselves felt.

Verizon’s LTE launch is approaching, which means it’s only getting more urgent to fix the LTE voice problem. Recap; LTE is all-IP, but this doesn’t help if the devices don’t use VoIP clients as standard. So the LTE community is looking for a way of providing circuit-switched steam voice over the shiny new network; hence, the new VoLGA standard, which makes SS7 circuits an application provided over a packet-switched network. In some places, the packets might themselves be riding a circuit…

According to Bango, however, none of this stops the users from moving onto a WLAN hotspot whenever they can find one. 20% of mobile content purchases are made over wi-fi, and it’s going up; after all, your home wi-fi or some other random hotspot is likely to be free and significantly lower-latency than the cellular network. News: users not daft after all.

Which is handy, as 36 per cent of users apparently want the BBC iPlayer on their mobiles.

Verizon Wireless, meanwhile, is trying to get ahead of the regulators, by unilaterally cutting the term of its handset exclusivity contracts to 6 months. And Vodafone will be making an announcement this week on the progress of its cost-cutting plan.

Mobile Today thinks Amazon is getting ready to launch the Kindle in Europe; the big question is, of course, who will get the MVNO job that makes it all work, which would be a sizable slug of wholesale data traffic for the lucky operator. You have to presume that Amazon will want to deal with the same operator for as much of Europe as possible, which should provide some clues as to who it might be.

Telefonica, perhaps? Anyway, O2 has kicked off the mobile financial services game in the UK by launching a prepaid VISA card linked to a mobile banking service. Again, it looks like NFC/RFID things seem to lose momentum the closer you get to an actual deployment; despite trialling with NFC, they’ve gone to market with a card. Making it a VISA card fulfils a key condition of successful mobile money, at least by our lights - that there must already be a widespread network of businesses that will accept payment from it and help either pay in money or get it out.

And finally, an interview with Biz Stone from Twitter.

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July 16, 2009

Ericsson joins Telco 2.0 Partner Programme 2009-10

We’re delighted that Ericsson has joined the ‘Telco 2.0 Partner Programme’ as a Platinum Partner for the coming 12 months. This strategic marketing service gives leading players:

Ericsson join Alcatel-Lucent, Amdocs Interactive, Nokia Siemens Networks, and Openet (also Platinum Partners), Alvarion, Detica, Juniper, and SAP (Gold Partners), and Martin Dawes Systems (Silver). Watch this space for more announcements…

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Ovum jump on the Telco 2.0 bandwagon

We’re delighted to see that at long last some of the traditional analyst firms are starting to explore ‘Telco 2.0’ concepts, 3 years after we kicked things off. Ovum’s contribution is here. Who was it who said that ‘imitation is the sincerest form of flattery’?

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Voice 2.0: Beyond Unified Communications

4 Alternative Enterprise Voice 2.0 Platform Business Models

Many, many different companies are pushing into the key Telco 2.0 field of communications-enabled business processes, or CEBP, which unites both the Voice & Messaging 2.0 and Enterprise VAS elements of our thinking. It’s one of the undemarcated frontiers, or creative tension zones, where most of the value is going to be created. In this note, we’re going to examine four leading CEBP platforms, all of which have been featured on the Telco 2.0 blog before, and try to identify some key trends and commonalities that explain something about how to succeed with CEBP and Voice 2.0.

We’re publishing an extract here on the blog, while the full article is available on the Subscription Service. Members of the service can read the full article here. Non-Members, please see how to subscribe here.

No-one is quite sure where the roles of telcos, Web2.0 players, ISVs, and systems integrators begin or end, or what distinguishes the VAS and voice & messaging elements. But it’s precisely this combination of complexity and openness that gives the scope for differentiation through business model innovation.

Fundamentally, this field is attractive to telcos and others because of the extreme disjuncture between the volume of bits involved - which drives cost - and the social and economic value attached to them, which drives the potential revenue from them. This makes it possible to achieve SMS-like “fascinating margins” and to actively substitute for the falling price of the core consumer voice and SMS products. You might remember that ten years ago, it would be worth employing someone to save an hour of phone calls, and that we calculated that a few text messages at the right place and time could save the UK transport industry £218 million a year.

No wonder operators we surveyed for the Voice & Messaging 2.0 report were so keen on APIs and commerce, although we still think they are worryingly unengaged with voice… The following chart represents the relative priorities a sample of operators assigned to different issues in the survey.

Source: STL

Four examples from the CEBP world

The products and companies we’re going to look at are Ribbit, IfByPhone, Intelepeer, and VoiceSage. (NB We’ve written about all four in the past; on Ribbit, we’ve done Ribbit: the amphibian of telco platforms, why Ribbit is worth $105 million to BT, Ribbit and BT’s evolving platform strategy, and trying to fix BT Global Services with open source. We interviewed IfByPhone CEO Irv Shapiro, and the CEO of Intelepeer, and VoiceSage have been significant contributors to every Telco 2.0 event we can remember, as one of the earliest companies to get into the field of CEBP and the first we studied in detail.) We’ve also done a Q&A with Thomas Howe, CEO of Jaduka.

To read the rest of the new analysis, Members of our Subscription Service: please click here. Non-Members: see here to subscribe.

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July 15, 2009

Mobile Payments: Lessons from the world’s leading exponents

Payments technology and how telcos can profit from it is a favourite topic for study by the Telco 2.0 initiative. Fundamentally payment systems are two-sided markets - payers and payees interact not directly, but through a platform to conclude transactions. Pricing, and which side pays, is crucial to maximize participation, volume and liquidity on the platform. Interconnection strategies with other payment platforms also play a vital role, not only in increasing convenience but in determining share of the value chain.

In this article, we examine in depth two African mobile payments solutions that we consider to be the leading examples of mobile payment, M-PESA and Wizzit. These payment solutions take very different approaches - M-PESA is very much a classic Telco 2.0 style platform business, and Wizzit is designed as an extension to traditional banking. We consider lessons learnt from both for operators worldwide.

Prior posts on this topic include Oi Paggo, ZAP, and Zoompass.

The full article is available on the Telco 2.0 Subscription Service. Members of the service can read the full article here. Non-members: please see here for how to subscribe.

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July 10, 2009

Telco 2.0 Research Agenda - 2009-2010

We’re delighted to outline the Telco 2.0 research agenda for the next 12 months, below. This will drive our event agendas (EMEA - November 2009; AMERICAS - Dec 2009; WORLD - APRIL 2010; APAC - June 2010) and consulting activity. If any of our readers would like to contribute expertise or other ideas, please contact us. We’ll be setting up some collaborative tools. (Our subscription research service is described here too).

Telco 2.0 Research Agenda 2009-2010:
The context, of course, is ‘business model innovation’ and in particular the ‘two-sided’ telecoms market opportunity.

Strategy & Finance 2.0: Role of Business Model Innovation in Increasing Shareholder Value
• Platform business models
• New metrics for growth
• Key untapped telco assets
• Impact on regulation

Consumer Services 2.0: Engaging with the ‘digital generation’
• App stores and new retail strategies
• Adding value to new communications media (social networking, games, MMORPGs)
• Product innovation process improvement
• Customer Data/Privacy

Digital Money
• A new role for telcos in the finance sector
• How and where to collaborate
• Mobile wallet

Digital Advertising & Marketing 2.0
• Engaging with consumers
• Aggregation/Collaboration strategies
• Exploiting User Profiles

Digital Home
• Managed home network for:
1. Healthcare
2. Utilities
3. Entertainment

Media 2.0: Digital Distribution
• Video ; Music ; News

APIs 2.0: Models for monetisation
• New aggregation strategies
• Developer Communities
• Practicalities of mash-ups

As part of this, we are working on ‘roadmaps’ and creating ‘use cases’, to demonstrate in practice how new business model concepts can work in practice. We are working with some industry bodies and individual operators to define commercial pilot activities.

In the near term (to November 2009) our “Use Case” development work, which will be promoted at our Autumn events, is focused as follows:

1. Video Distribution over Broadband: 3rd Party Pays
2. Marketing/Advertising Services: a collaborative model for telcos
3. SmartGrid: beyond metering
4. Digital Wallet and Payments: mature markets
5. Voice and Messaging: Embedding in 3rd Party Applications
6. Digital Health: healthcare in the home
7. SME logistics: Customer and field force scheduling

We will be looking at how to leverage key telco assets: SIM, network, customer data, existing telco products. The aim is to describe in detail business processes, money/value flow and the implications for organization and technology for different players in the value chain, focusing on the opportunities for network operators.

If you’d like to offer assistance/expertise/ideas, please contact us.

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July 7, 2009

Mobile Broadband: Urgent need for new business models

Introduction

This is an edited extract of our new Executive Briefing Report “Mobile Broadband: the urgent need for innovative business models”, available in full to members of the Telco 2.0 Subscription Service. Non-members please see here or here to buy the full report.

Mobile broadband – a reason to be cheerful?

The last 18 months have seen a huge upswing in the adoption of mobile broadband (MBB) globally, especially relating to PC connectivity through 3G USB “dongles”, as well as high-end smartphones like the Apple iPhone. For the mobile industry, MBB has been one of the few bright spots, especially in mature markets where the recession (and regulation) has impacted voice and SMS revenues. For many operators, PC-based data revenues have eclipsed lacklustre growth of content and data services on handsets.

Figure 1: Global mobile broadband computing users

chart 

Source: Telco 2.0, Disruptive Analysis

Looking forward, many in the mobile industry are now expecting other MBB products and user scenarios to drive revenues further – netbooks (mini-laptops), smaller “mobile Internet devices” (MIDs) and embedded-3G notebooks are all being advocated. Further out, there is the potential for a vast array of other devices from the realm of consumer electronics or M2M (machine-to-machine) sectors.

A victim of its own success?

But there is a dark side of current MBB business models, despite the success. PC users generate so much data traffic that networks that were empty just two years ago are now congested. Originally designed (“dimensioned”) to cope with small-screen devices used occasionally, HSPA networks are having to cope with laptop-sized video downloads, hours-long social networking sessions and rich Web 2.0 sites which download content “in the background”. Extra iPhone usage compounds the problem.

In some cases, the revenues from MBB services are not even covering the costs of delivering data to the users. The current business models are broken – especially if they also need to provide enough cash flow for further network upgrades and expansion. Despite the wishes of marketing departments, it seems like expensive “mobile” broadband capacity is being wasted at giveaway prices, in an attempt to compete head-on with fixed broadband services.

Figure 2: Global 3G data traffic by device type

chart

Source: Telco 2.0, Disruptive Analysis estimates

This report is not going to rehash the basic market forecasts for MBB and devices, which are well-covered elsewhere. Instead, this document looks at the need for a set of new business models around mobile broadband. This partly reflects the cornucopia of new devices, partly the impact of the insatiable demand for more bandwidth – but also methods for operators to innovate and seek out revenue streams beyond the normal monthly contract. MNOs need to squeeze more cash from their network and spectrum investments – but it needs to be profitable traffic.

There is clearly a demand for basic, vanilla, mobile Internet access from laptops or netbooks. But even that can be packaged in many different ways, rather than unimaginative and undifferentiated data plans, that just encourage constant price erosion amongst competing operators.

An overview of the new business models needed

At present, the majority of mobile broadband subscribers are engaged through traditional monthly contracts, typically over 12-24 month periods. This is true for both standalone modems and especially embedded-3G notebooks. There are also some popular prepaid offerings, especially in markets outside North America.

However, further evolution is necessary. Many consumers will not want another monthly commitment, especially if they are infrequent users. Operators will be wary of subsidising generic computing devices for the non-creditworthy.

We expect a variety of new business models to emerge and take a significant share of the overall user base, including:

  • Session-based access, similar to the familiar WiFi hotspot model;
  • Bundling of mobile broadband with other services, for example as an adjunct to fixed broadband or mobile voice services;
  • Free, guest or “sponsored” mobile broadband, paid for by venue owners or event organisers;
  • “Comes-with-data-included” models, where the upfront device purchase price includes connectivity, perhaps for a year;
  • Two-sided business models, with mobile access subsidised by “upstream” parties like advertisers or governments, rather than direct end-user payment.

Transition to these models will not be easy. There are question marks about the convenience of using physical SIM cards, especially for temporary access. Distribution, billing and support models will need re-evaluation. Definitions and metrics will need re-evaluation. Terms like ARPU and “subscription” will have less relevance as conventional “subscribers” drop to perhaps 40% of the overall mobile broadband user base. Operators and vendors need to face up to these challenges as soon as possible.

Figure 3: Mobile broadband can support both subscription & transient models

chart

Source: Telco 2.0

Who is this briefing for?

Strategists, network planners, mobile data marketing executives, radio network vendor strategy & marketing staff, laptop and mobile device suppliers.

Contents
  • Executive summary & recommendations
    • Recommendations for mobile operators & retailers
    • Recommendations for network equipment suppliers
    • Recommendations for device & component vendors
  • What is a business model?
  • Defining the marketplace
  • The past and present – how did we get here?
    • Notebook bundling
    • Rolling contracts
    • Pre-paid / “Pay as you go” subscriptions
  • Do revenues reflect underlying cost per GB?
  • Can WiMAX fill the “capacity gap” & offer new business models?
  • Beyond basic subs: domains of innovation
  • Advanced retail models
    • Broadband bundled into device purchase price
    • Fixed & mobile combined broadband models
    • Multi-device business models
    • Rental models
  • Wholesale mobile broadband and MVNOs
    • Wholesale Beyond MVNOs: slice’n’dice
  • “Two-sided” models in mobile broadband
  • Sponsored / Advertiser-funded / “Free” mobile broadband
  • Future innovative roaming models
  • Enablers of the new MBB models
    • Embedded-3G/WiMAX notebooks - core to a new model?
    • MIDs and new device categories
    • Mobile broadband and APIs
    • Intelligent wireless broadband
    • The role of femtocells
    • The role of LTE
    • The role of WiMAX
  • Conclusion & recommendations
  • Glossary

Members: to access the full report please click here. Non-Members: to subscribe click here or buy the report here.

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Guest Post: Richard Mishra, Amdocs - In All the Excitement, Do Not Forget the Basics

There is always something to be really excited about in the information and communications industry; Next Generation Networks, Media Services, Service Delivery Platforms, IMS, Service Orientated Architectures, Software as a Service, Virtualization, there is so much to look forward to. The public face of our industry has always focused on service and service delivery, and now we want to take this further and focus on the whole customer experience.

This is great, but it’s only half the picture. If we throw into the mix a deep and global economic recession, then ‘may you live in interesting times’ starts to look like the curse it’s claimed to be. So who is looking after the dull old fashioned business that pays most of our salaries? Where is the discussion about managed, optimized investment? Is the shareholder and the service provider getting good value from what we have in the ground today?

Here at Amdocs, ‘Interesting times’ is not a curse. We see it as an opportunity to remind the industry that we cannot get away from good old fashioned telco values; close and accurate management of our assets and services.

What do we mean by ‘close and accurate management’?

  1. An inventory of the resource assets and services, held with sufficient accuracy to plan the resource growth and automate fulfillment.
  2. Process integration to ensure speedy execution of business processes and, even more importantly, to ensure that the inventory is kept accurate and up-to-date
  3. A lifecycle process that directly couples the Service Provider products to the resources deployed and continually feeds back metrics from service management to ensure the product specification matches the customer experience.
  4. We call this the ‘Full Service Provider Lifecycle’. It couples all the major product, resource and service management operations into a single lifecycle. It aligns the business to the customer experience of service while ensuring value to both customer and Service Provider. Resource investment is directly coupled to the experience it delivers, not driven by the urge to deploy the latest ‘must have’ gadget.

    Richard_Mishra_Amdocs_TechArch_Telco2.png

    Yes, Customer Experience is important, and yes, the next iteration of services will be delivered from data centers to consumer electronics. They will be delivered using resources that understand the need to differentiate and groom for service performance. Operating a full lifecycle will help to achieve this, but more is required.

    1. Data centers, servers and applications will need to me managed with the same attention to detail that is traditional for networks in the communications service provider.
    2. Customer Experience Management will need to emerge as an engineering and IT discipline, with its own metrics, business processes and management tools.
    3. Specialist management systems will emerge from a flurry of innovation. They will be essential in delivering and quality assuring the next generation service, in the data center, the data network and the consumer appliance. Traditional management systems will need to integrate and interoperate with them.

    Different Service Providers will have to learn to work together to deliver these services, not at arm’s length, as is the way today, but as closely coupled as the systems within the Service Provider. Content, communications, access and media transport providers, wired and wireless, will have to work together to deliver a single service to a single consumer. Quality will have to be managed, not in each provider, but across all the participants, including the customer.

    There is a final, critical enabler for all of this. We are faced with the proposition that we must have process integration, which means full system integration for existing and new management systems. We must rapidly integrate and evaluate from an increasing population of new resource performance, service quality and customer experience systems and we have to integrate management systems between participating Service Providers.

    Do we really expect all of these interfaces and all of these integrations to be customized for every service provider and between every pair of SPs that need to interoperate? The prospect makes no business sense. Without standard interfaces, none of this will happen. We need to stop thinking of telco standards as an afterthought for dull people. Standards helped create the telecoms and IT hardware industries. Now, standardization needs to bring these two together. It is the critical enabler for innovation in the next phase of communications services.

    Whatever Telco 2.0 turns out to be, we can be sure that the Service Providers who implement it are the ones who can excel in today’s economic and competitive climate. They will be the ones who are running a tight ship right now; operating integrated processes and integrated systems with standardized interfaces.

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Online Video vs Broadband: A symbiotic relationship?

Initially, broadband enabled online video. Now online video is growing to become the volume driver of broadband traffic. Analysis of these interrelated markets at different stages of evolution worldwide provides insight to future strategy in both.

Online video traffic is growing rapidly to become the volume driver for consumer broadband services. In this edited extract from our Strategy Report Online Video Market Study - the impact of video on broadband business models, we describe groups of national markets with comparable broadband performance, pricing and penetration to demonstrate how online video markets are evolving worldwide.

Why online video matters to broadband

Online video makes up one-third of consumer internet traffic today and will grow more than ten times by 2013 to over 90% of consumer traffic overall. For fixed and mobile telcos and other broadband service providers, a large part of future strategic success in broadband therefore rests on understanding how the online video market and ecosystem will evolve and how to interact with it effectively.

(NB: We’ve covered some of the online video industry dynamics in our recent analysis Google - How (precisely) it profits from YouTube/em>, in the briefing Video Distribution 2.0 - Time to re-think the fundamentals, and presented scenarios for market evolution here. )

Emerging broadband / online video plays

An explosion of different online video plays has been driven by different combinations of broadband pricing, bandwidth and market penetration.

Figure 1: Broadband Prices versus Speed

Our analysis shows that countries fall broadly into four groups.

  1. High bandwidth, low price countries (green box) - South Korea, Japan, France, Finland and Sweden have 16Mb/s average broadband capacity, enough to receive two high definition tv streams or a variety of other services per household
  2. Moderate bandwidth, low price countries (blue) - US, Canada, the Netherlands and Germany have 4Mb/s+ average broadband capacity, enough to comfortably take standard definition TV plus other services in parallel
  3. Low bandwidth, low price countries (yellow) - UK, Spain, Italy and Hungary
  4. Low bandwidth, high price countries (pink) - Many eastern European and developing countries, which have broadband at video TV quality or worse and where price is the barrier to heavy use.

The Online Video Market Study examines the customer behaviours and market dynamics in these groups, and includes case studies on key markets to explore the key industry dynamics of the development of broadband and online video usage.

Factors driving internet video emergence

The rise of IP-based online video was driven by two key factors - increasing bandwidth and user penetration of broadband internet.

  1. Bandwidth drives the quality of online video that can be consumed in real time via streaming, rather than being downloaded prior to consumption. It also drives the speed of downloading.
  2. Penetration drives the attractiveness of the market for service providers that typically assume large user bases can be monetised via advertising, or that offset economics can amortise investment in services. They also assume that a successful start-up service can be sold to a larger player. For example, YouTube’s $1.65bn sale to Google started a rush of online video start-ups.

The Impact of Bandwidth

Streaming video, which emerged in dial-up days, was the first IP media technology to be used. However, video really took off with the arrival of broadband in the early 2000s. Figure 2 shows the relative quality of video media that can be streamed depending on bandwidth.

Figure 2: Quality of media stream by bandwidth

householdspeeds.png

As the available bandwidth increases, it becomes increasingly possible to stream video media. By 3Mb/sec broadband speed, PAL quality standard definition TV is possible. By 8Mb/sec, high definition TV is possible. By 24Mb/sec, any normal-sized household will have full multimedia capability.

Different countries have vastly different average bandwidth, meaning there are major differences in the sort of online services that can be offered. Advanced countries, such as Japan and South Korea, give some insight into how other markets will develop.

The Impact of Market Penetration

The other factor behind the services offered is the value of the market, which is driven primarily by penetration, in essence the number of customers online. The higher the penetration, the more people there are who can buy video services, making the market more attractive to online video companies.

The Telco 2.0 Online Video Market Study

The Online Video Market Study analyses the potential of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of distributors (primarily telcos) is examined, possible threats and opportunities revealed, and strategic options are discussed.

  • 137 Pages of original research & analysis
  • Covers 98 Companies & Organisations, including Telcos and Media Companies
  • 4 detailed Case Studies including Hulu, YouTube & Apple
  • 72 Technologies & Applications including IPTV and IP Video
  • 53 charts and tables Proprietary industry research

Report includes:

  • Market background, size and dynamics
  • Differences in, and lessons from, different geographies
  • Analysis of prospects by content type: movies, sport, music, adult and user-generated
  • Hulu Vs YouTube: Comparative business model analysis
  • Market forecasts for revenues related to online and mobile video
  • Evolving market scenarios
  • Positioning to maintain / develop advantages in scenarios
  • Recommends specific short, medium and long term actions for moving forward
  • Please see contents here

Who is this report for?

The study is an invaluable guide to fixed and mobile Broadband managers and strategists, broadband equipment vendors, and those across the TV and video value chain who are seeking insight into how the online market will develop and the opportunities and threats it presents.

To order the report, please click here, or find out more here.

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July 6, 2009

Ring! Ring! Hot News, 6th July 2009

In Today’s Issue: Virgin after 4th French licence; SFR basks in iPhone glamour; India trebles teledensity, heads for 500 million subs; Indian military gets fibre in exchange for spectrum; Sarawak gets WiMAX; Oregon gets WiMAX; Portugal gets 100Mbits broadband; Econet rolls out in Kenya, Zimbabwe; Eurovendors - still got it, Ericsson edition; ignorant senators; Smart Comms’ next move; GrameenPhone IPO is go; Iran says no to Zain; Vodafone and CPW make nice; latest T-Mobile UK rumours; O2 gets Palm Pre, but Orange gets Blyk; T-Mobile: we can’t spy on our customers, we’re doing too much network-address translation!; BBC: Canvas makes sense, you know; Joost sneaks off quietly; new ad spec from CableLabs; Nokia immediately updates new phone; HOWTO make N97 homescreen widgets; rumour: Nokia to do an Android gadget; yet another dead Nokia service; Ericsson has an app store now; VCs throw money at iPhone start-ups; Zer01 launches, Tracfone is cheap; US broadband grants come with net neutrality; EU finally ends the charger madness; bad connectivity makes a fool of Bloomberg

Stalking the French fourth mobile licence; Virgin Mobile is apparently interested, with a “strategic partner”. Presumably this means that a big enough MVNO, in the opinion of its own management admittedly, now qualifies as a launch customer for a greenfield UMTS network; looks like wholesale really is becoming crucial. According to French government sources, the tender should be issued before the end of July for a decision in January 2010. Relatedly, SFR claimed it had a “good” Q2 in terms of subscribers, probably driven by the iPhone halo effect.

Meanwhile, the Indian government’s annual Economic Survey reports 414 million lines as at February, 2009, putting the country well on the way to its goal of 500 million by 2010. Teledensity has actually trebled since 2006. The Indian government also said, presenting its budget for 2009-2010, that it wants to push back up to 9% annual growth as quickly as possible; so it wouldn’t be any surprise to see a fair amount of state money going into the sector either. After all, the Indian military is getting a national fibre-optic network in exchange for disgorging spectrum the 3G networks will need.

Sarawak - that’s the northern half of Borneo - is getting WiMAX from PacketOne; Comcast has started up-selling its cable customers with mobile broadband, supplied by its investment in Clearwire’s WiMAX network. And Portugal is getting 100Mbits to the kerb - cable operator Zon expects to pass 2.8 million homes by the end of the year.

Econet Wireless is deploying in Zimbabwe; they also secured financing from the Pan-Africa Infrastructure Fund to roll out more GSM in Kenya. So who’s landing the infrastructure contracts in all this rolling out then?

Boring old-fashioned European vendors, that’s who. Ericsson is upgrading Kyivstar’s network to handle a surge in data traffic, as well as kitting out Econet in Zimbabwe, and Alcatel-Lucent is putting in new HLRs for China Mobile’s Shaanxi provincial network. It’s almost as if they knew something about this business; unlike US Senators Schumer and Graham, who not only don’t know that all cellular networks have lawful intercept features, but they don’t know that this holds for the ones made by Motorola and…Motorola either. This isn’t stopping them from binge-legislating, though.

A new 3G play launches in the Philippines; it’s a partnership with Smart Comms, better known as pioneers of mobile money transfer, so expect interesting things to happen. Apparently they’ve already tried ad-funded connectivity.

GrameenPhone, Bangladesh’s biggest mobile operator by subscribers, announced that its IPO is back on, which will no doubt please their strategic partner Telenor, always keen to realise gains on its heavy investment in emerging markets. Meanwhile in Iran, Zain’s troubles continue, as the Iranian government made clear they don’t have a chance of getting the third mobile licence. Perhaps not so much of a problem after all; they’ll only turn it off for weeks on end.

Back in the UK, the dispute between Carphone Warehouse and Vodafone has been settled; it looks like being good at retail is a valid strategy after all. Who knew? Of course, everyone’s watching the T-Mobile UK situation - especially 3UK, which is of course a half-owner of the actual network under the MBNL joint venture.

O2 UK landed the exclusive contract for the Palm Pre, just like it did with the iPhone; we theorise that their secret is “money”. As with the iPhone, Orange got the wooden spoon; in better news, they have just become Blyk’s wholesale partner in the UK, as the ad-funded super-MVNO begins a new strategy of seeking operator partnerships.

Meanwhile, the operators pushed back against government surveillance; T-Mobile UK’s head of data protection told a parliamentary committee that it would be very difficult to track URI requests from their network because of the degree to which they re-use IP addresses between subscribers. 1,000 subs, apparently, may be sharing one IP. Not many Internet people will have thanked an operator for using NAT to this extent before…

The BBC has been pushing its Project Canvas integrated video delivery platform again; meanwhile, the hugely hyped Joost is quietly retrenching, having first dropped its native P2P application and now abandoned its customer-facing brand and become a pure white label video service.

CableLabs, however, has responded to the abandonment of its community targeted advertising specs with the launch of a new standard for advanced advertising.

Having just launched the N97, Nokia announced a major firmware update for it; they also have a nice HOWTO guide on making widgets for the device’s home screen using their Web Runtime. It’s all in HTML, CSS, and JavaScript; so very like a Palm Pre, iPhone, or JIL widget then. It’s further rumoured that they might do something with Google Android, although this could be just another Linux-based tablet.

Meanwhile, The Register notes that yet another Nokia services acquisition has bitten the dust; Widsets, the early widgetry platform for Java developers, has been quietly shut down as the Ovi Store opened for business. Speaking of which, both Ericsson and Qualcomm now have their own app stores. Will it never end? Not just yet; with $100 million in VC funding being thrown at iPhone start-ups, the hairy developers and their shiny-suited bizdev types have got quite a lot of money to spend before the inevitable shakeout yet.

Zer01, the US-based mobile VoIP operator, has launched its unlimited voice & video for $70 service; you can get that without the video for $45 from Tracfone.

Net neutrality - you better get used to it. If you want any of the US Government’s $4bn in broadband funding, that is. It looks like anyone who accepts a grant, whether to get basic service into the boondocks or to lay fibre-to-the-home, will have to respect neutrality by law.

An end to the mobile charger insanity is at hand; only 18 months after agreeing with the European Union to use micro-USB rather than the current hellbroth of proprietary plugs that are all just slightly wrong, the industry signs an MoU to actually go ahead and give all their future gadgets a single micro-USB charging and data socket.

And finally, even if you’re Michael Bloomberg, it’s still the infrastructure, stupid.

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