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September 28, 2009

Ring! Ring! Hot News, 28th September, 2009

Telco 2.0 Top Stories

Vodafone boss Vittorio Colao wasn’t kidding about social networks the other day. In a major product announcement, the carrier presented its new Vodafone 360 client, which is a single interface for multiple third-party social applications. Most of the handsets that will run this suite of applications will be running LiMo Release 2, and will provide an HTML/CSS/Javascript widgetry API for the app layer. As well as an app store, there’s a cash reward out for the most compelling application - as this is presumably going to be linked up with the other JIL carriers, it’s a case of “gentlemen, start your engines”. Gadgets are expected by Christmas, with the various associated services rolling out in Vodafone’s core markets by then.

360 isn’t, however, coming to Verizon Wireless, which seems to have opted out of the Voda-wide push to twitbook the mybebo out of the planet. Despite that, they are committed to deploying the LiMo R2 gadgets. So it looks like three things have happened: Vodafone has drawn a line under the era of “content” i.e. footy clips, LiMo has got a launch customer, and JavaScript developers are taking over the world.

Speaking of which, Google’s mobile team is working on the next version of Gmail, using the new HTML 5 standard. They have discovered something interesting about designing those HTML/JavaScript widgets everyone loves - namely, it takes much longer to read and parse the code than it does to load it over the network (or even more so from a local file). So they hit on an elegant solution - stash all the code you don’t immediately need as comments, and strip the /*comment*/ tags as you need the functions they contain. They’ve reinvented just-in-time compiling, in JS.

Palm this week poached two key coders from the Mozilla Foundation to work on its WebOS.

It seems that the end of iPhone exclusivity is at hand; they’re coming to Orange UK, while China Unicom will be selling them with a little help from our old friend, handset subsidy. Not that the decision for Unicom was tough - they’re the ones with the GSM network.

The UK catches up with the US, and has a blocked iPhone app row. Not just that, but one related to voice and messaging - so there’s this bloke who’s written a client for the popular saynoto0870 Web service, which lists alternative phone numbers for companies whose public phone number is premium-rate. When you tap in an 0870 number to the iPhone, the client intercepts the number, does the database lookup, and offers you alternative options.

Of course, this isn’t good news for either BT, the provider of 0870 numbers, or O2 - 087x nongeographical area codes aren’t covered by inclusive minutes, so they’re a nice little earner. And it turned out that the application sat stuck in a pipeline at Apple for about a year, while the Google Android version went through on the nod. Naturally, everyone’s denying any interference.

Meanwhile, CNET reports a wave of dissatisfaction with the iPhone’s phone element. It’s not the first time the gadget’s RF performance has been criticised.

Kineto Wireless is trying to interest mobile operators in a client that offloads voice traffic from their networks onto WLAN and the public Internet. The idea is to simultaneously compete with Skype and save some backhaul and switching costs.

A new MVNO sprouts at O2; GiffGaff claims it’s going to be run by its subscribers, which may well be code for “don’t expect any tech support, sunshine”. It also says it will offer rebates to users who take part in its decisions…

In other voice & messaging news, a Jamaican student has been given bail on fraud charges after hacking Digicel’s BSS and allegedly stealing $115,000 worth of calls. (Telephony - the original killer app.) And a French court ruled that “texto” isn’t a trademark.

The Indian prime minister has intervened in the Bharti-MTN deal, out of concern that the South African regulators aren’t playing fair. No-one ever said this was going to be easy…

In the enterprise, you can always expect to encounter two companies - IBM and RIM. No surprise, then, that they’re teaming up to offer fixed-cost, flat rate support for BlackBerries - you just need to pay for the gadgets and the data traffic.

In their satin tights, fighting for your digital rights, it’s..the Electronic Frontier Foundation! They’ve secured the release of papers which detail the US telcos’ efforts to lobby for immunity over their involvement in illegal surveillance; the telcos must dump documents by the 9th of October, after which, we may confidently predict, there’s going to be a hell of a row. They’re also suing Texas Instruments over a superbly geeky dispute - users of their high-end graphing calculators cracked an encryption key so they could install their own operating system on them, and TI immediately threatened them under the Digital Millenium Copyright Act.

In broadband and video news, Wired has an interesting article on Netflix and its efforts to become a streaming-media company. This is curious; famously, you shouldn’t underestimate the bandwidth of walking to the video store, and Netflix’s traditional strategy nicely got around all the problems of the local loop by pushing bits on physical media. After all, they didn’t have to be live or bidirectional, so it made sense to use the network for signalling and the sneakernet for bearer traffic. DSL operators, another wave of bombers is approaching the coast. Tangentially, David Isenberg has a snark at Global Crossing for discovering Ethernet.

Verizon Wireless, meanwhile, wants to roll out LTE all at once; no wonder the FCC is asking if there is a need for more spectrum. Telephony Online looks at US public-sector fibre projects and notes that a surprising number of them are managing to roll out without needing federal aid from the stimulus plan; mmm, fibre.

Brough Turner posts a talk from last eComm in which he argues that structural separation and open dark fibre are vital to the success of fibre deployment; he also has a really interesting chart of actual mobile data speeds and research on the motivations of acquiring a mobile phone in the emerging markets.

David Burgess’s series on deploying open-source GSM at Burning Man goes on; there’s a lot of detail on the problems he had with his Asterisk server-as-HLR, and there are rather cool coverage maps here, including how he went about instrumenting the network and what the data says. (It looks like he may have given the small community of Gerlach, Nevada a surprise at over 15 kilometres’ range; now what roaming tariff does AT&T levy on calls made from within a +883 country code?)

HOWNOTTO market your data centre; nick your competitor’s customer list, spam them, and then hand the suckers who signed up a mammoth no-notice outage.

Le Monde has grim things to say about the internal culture of France Telecom.

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September 25, 2009

Agendas/Speakers for Telco 2.0 Exec Brainstorms (EMEA and AMERICA)

As most readers will know we have our 7th and 8th Telco 2.0 ‘Executive Brainstorms’ coming up, both focused on new business models at the intersection of the telecom, media and tech sectors:
EMEA: 7th Telco 2.0 Exec Brainstorm, 4-5 November, London
AMERICA: 8th Telco 2.0 Exec Brainstorm, 9-10 December, Orlando
Both events comprise two days of very intensive, facilitated, interactive exploration of new strategic growth opportunities, for up to 250 invited senior execs. They are based on new business model research from the Telco 2.0 team and, this time, new ‘Use Cases’, as well as best practice case studies. Agenda:

Strategy & Finance 2.0 - Business Model Innovation & Shareholder Value; Customer Data 2.0 - Leveraging telcos’ most valuable asset ; Consumer Services 2.0 - Engaging with the ‘digital generation’ ; Mobile Money 2.0 - Strategies for Mature Markets ; Digital Advertising 2.0 - Services for ‘customer-centric marketing’ ; Mobile Broadband 2.0 - Dealing with capacity and coverage challenges ; Voice & Messaging 2.0 - Communications-Enabled Business Processes ; Video 2.0 - Digital Distribution in a ‘Pirate World’ ; M2M 2.0 - Mobile healthcare and Smart Grids ; Cloud Computing 2.0 - Telco Opportunities in Consumer and SME Markets ; APIs 2.0 - Models for monetisation.

Stimulus speakers: As well as the Telco 2.0 analysts, there will be c. 50 presenters and panellists per event, currently being specially briefed to stimulate the brainstorming with new insights, data, use cases and case studies.

Early-bird discounts expire 30 Sept…www.telco2.net/event

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September 24, 2009

eComm Fall, 28-30 Oct, Amsterdam - Recommended Event

If you are interested in some high octane stimulation in addition to the upcoming Telco 2.0 events (EMEA and Americas), we’d strongly recommend eComm Fall, The Emerging Communications Conference & Awards in Amsterdam on 28-30 October. 10% discounts available to Telco 2.0 readers here.

eComm promotes and accelerates communications innovation and showcases ‘what’s next’ in Telecom, mobile and Internet comms. And we agree with Lee Dryburgh, eComm’s founder, when he says:

“There is not a migratory way for telecom operators and media outlets to the future; emergent social practice is increasingly clashing with their very structure and desires. This means unprecedented opportunity for those ahead-of-the-curve.
The emerging transformations require big thoughts and big bets. eComm is the venue for those thoughts and bets to be shared and heard.”

For more information please visit http://europe.ecomm.ec/2009/ or register here to receive a ‘Telco 2.0’ 10% discount. To share this article easily, please click:

September 23, 2009

Google vs Telcos Through Two-Sided Strategy

The following is an extract from our new Telco 2.0 Executive Briefing on Google’s strategy and what it means for the telcos.

Members of the Telco 2.0TM Executive Briefing Subscription Service can click here for the full report. Non-Members, please see here for how to subscribe, here to buy the individual report, or email contact@telco2.net or call +44 (0) 207 247 5003.]

We’re just putting the finishing touches to our in-depth analysis of Google’s increasingly active telecoms strategy in our forthcoming Executive Briefing, from which we publish the following edited extract covering some of the latest developments. We’ve also written on Google in some depth before, including Google Vs Telcos: the Tale of the TapeGoogle Anchors its Carrier off Telcoland, Google’s Complex Execution of Simple Two-Sided Business Model Strategies, and How Google Profits from YouTube

The Battle of Scale: Customer Data and IT Infrastructure

Google and Telcos share a speciality in operating IT systems at very high scale - either the traditional switching, data centre and call centre capabilities of the Telcos, or the cloud computing infrastructure Google specialises in. Telcos have a lot of work to do to rival Google on cost and adaptability, but in general terms, this is an area where they have little choice but to compete - carriers are building up cloud computing capability, while Google is investing in dark fibre and other Telco-related services.

Although Google has a huge data resource of Web searches, it has essentially no customer relationships with consumers and nothing like the huge volumes of social-graph information that are to be found in the Telcos’ Call Detail Record (CDR) piles. As it will be very difficult and slow for Google to replicate these assets, this is an important ”spike” - an area where the Telcos’ profile is strong, but which doesn’t match a similar strength at Google.

Telcos are also developing important capabilities around identification/authentication and payments, which could become a second spike - Google Checkout hasn’t gained much traction, and although Google supports the OpenID project, OpenID is more a way of using identity data on the Internet than a source of strong authentication in its own right. For most OpenIDs at the moment, the security is only as good as the webmail account used to sign up - which isn’t great.

However, Google’s search engine and strong brand name has given it a potent platform from which to move into new markets. And Google does have an increasingly broad set of initiatives, such as Google Talk, Google Voice, Google Wave and Android, that encroach on Telcos’ core communication services.

The Battle for Control: The ‘Google Voice of Doom’?

Indeed, Telco 2.0 sees Google Voice as a direct threat to some aspects of conventional operator business models. By issuing its own telephone numbers, Google is starting down the path of disintermediating Telcos from their “ownership” of personal numbers and identities.

Google assigns you a Google telephone number, which you can keep for life. Once you have given that number to all your friends and contacts, you can then use the Google Voice Web site to determine which of your phones actually rings when an individual dials your Google number. “Let my boss call my mobile only between 9am and 7pm, and always divert my mother-in-law to voicemail”.

GoogleVoice screenshot - user-defined call routing

This threat has been exacerbated by the recent launch of a Google Voice mobile app, which is integrated with the contacts book, to enable users to make Google Voice calls from an Android or Blackberry device. The user’s handset actually rings the user’s Google Voice number, which then routes the call from there. The mobile phone service provider can still charge the user to connect to their Google Voice number. But in the U.S., Google Voice could enable the user to circumvent surcharges for receiving calls on their mobile (by directing incoming calls to a fixed-line) or for making long-distance calls.

It is not just Telcos that have cause to be concerned. Apple has, so far, not approved Google Voice for inclusion in Apple’s App Store, saying that it “appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voicemail.”

(NB. Telco 2.0’s forthcoming Executive Briefing on Google analyses Google Voice in-depth, as well as examining the significance of Google Talk, Google Wave and Android.)

It looks a lot like telephony

The Battle for Location: Giving Google Latitude

Location, often thought of as a Telco speciality, is being eroded by Google’s investments - they have their own network-based location API for Gears developers, which although it is based on Telco data, probably wasn’t what the carriers were hoping for. Google has made significant investments in preparing a very large database of IP address geo-location information and productising this in support of Google Maps, Google Maps Mobile, Google Local, and probably also for their own internal IT optimisation.

In a related development, Google offers a basic status-broadcasting service for location information, Latitude, which is used to provide location information for social applications, for localised search, and probably also for location-targeted ads. The location information is a mixture of cellular and IP geo-location data. It is broadly comparable to Yahoo!’s FireEagle.

It is likely to become easier for Telcos to unlock the potential of their location data as a result of projects such as the GSMAs OneAPI, so expect the competitive balance to shift back towards the Telcos. On the downside, location data is increasingly likely to be free to the end user - GPS service, after all, already is free, and GPS chips are falling in price and being integrated with progressively cheaper devices.

Many Google products compete with existing Telco 2.0 or at least Telco 1.5 activities - search, maps, mail and the like. But, in terms of capabilities, it’s the Telcos’ advertising operation, developer community, and SMB marketing group that are also the most likely to benefit from Google’s location-based search programmes.

Grab the Hilltops

For Telcos and other service providers, there is next to no hope of breaking into the search market, barring some seismic technological breakthrough on the Telcos’ side or company-destroying catastrophe at Google. Similarly, unless the Telco side hits on a really incredible product, mail, maps etc. are unlikely to be worth fighting - especially as doing so would involve starting a fight with Yahoo and Microsoft into the bargain.

These are not key strategic losses for telcos. But the following would be:

  • to fail to capitalise on the unique opportunities inherent in Telco customer data
  • to lose control of the user communications interface
  • to fail to create real value through Location Services
  • to allow Google to monopolise the mobile developer ecosystem
  • for the emerging GSM m-banking/m-payments systems to lose out to Google.

The best defence in these circumstances is to grab the hilltops before Google does. Fortunately, on at least two (developers and payments) of these, Telcos’ activity is picking up fast. But is it enough, and what else can be done?

Members of the Telco 2.0TM Executive Briefing Subscription Service will be able to the full Google report using this service. Non-Members, please see here for how to subscribe, email contact@telco2.net or call +44 (0) 207 247 5003. 
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September 21, 2009

Ring! Ring! Hot News, 21st September 2009

Telco 2.0 Top Stories

In other news: Phorm - the end is nigh; Robo.to tells you more about incoming callers than you can read before you pick up; new version of Android; I love my INQ Mini, rather too much; Palm loses money under GAAP, loses 10x less under own rules; no more Windows gadgets from Palm; Hesse sez FCC “fair” to probe exclusive handset deals; row over Walsten’s FCC seat; VZ ditches the copper world, would quite like to keep tax break; AT&T denies role in Gvoice/Appstore; CMT slashes Telefonica wholesale rates 25%; VoLGA standard is here; NSN first call on LTE; T-Mobile USA first HSPA; FON gets into GSM; David Burgess at Burning Man; Y! intros combined OpenID/OAuth; IBM, Cisco both want smart grid standards; dire desk phone GUI, mocked; Braille on your phone; dodgy iPhone update; dedicated Apple support; HD voice “driven by VoIP”; Skype, Joost suing

Vodafone announces Vodafone 360, the successor to Vodafone live! The interesting bit here is exactly what 360 offers - rather than the video-heavy content offering that characterised both Live! and most operators’ ideas about what to do with 3G back in the day, its main selling point is as a wrapper around multiple social networks and other communications services. Vittorio Colao recently told investors that the social networks were one of the biggest drivers of traffic on Vodafone, and this looks like they’re suiting the action to the word. 360 is also going to include an app store - at least it’s a better name than Vodafone Widget Manager…

Facebook, meanwhile, is claiming to have gone cash-flow positive, which suggests that not only is it succeeding in monetising its traffic, but it’s also beginning to make its way past the kink in the curve of scalability. To begin with, running a Web service is cheap; after a while, however, growth renders it increasingly expensive, especially once you have to manage a big fleet of servers distributed about the world. As we’ve seen so many times, if you can operate at really high volume, there are economics of scale that kick in and bring the marginal costs of operating a cloud right down. The problem is to get through the coffin corner between the two…

At the same time, however, they’ve settled a lawsuit over the controversial Beacon targeted-ads operation, which essentially planned to sell all your data to advertisers and to track you whether you were logged in or not. They’re forking out a charitable donation of $9.5m, and more to the point, the terms of the settlement mean that Beacon is to be immediately shut down.

In related news, Phorm’s financials are expected, and a number of directors have quit the troubled advertiser. On the upside, they’ve also shut down their “Stop Phoul Play” PR drive against “privacy pirates”.

It seems to be a week for social networks - there’s an iPhone and Android app called Robo.to coming that promises to show a wide variety of information about incoming callers - although exactly how you’re going to take in the content of their linkedin page, twitter feed, etc, in the interval between ringing and answering the call doesn’t seem clear. As the FT points out, Nokia acquired a small company that specialises in this stuff some time ago - so clearly Robo.to is going to have a clear run at it!

They also mention Motorola’s new gadget, the Cliq (in North America) or Dext (in Europe - do you think they change if you take them on a trans-Atlantic flight?), which Moto describes as “the first phone with social skills”. It’s an Android-powered big touchscreen device with a pretty (and iPhone-esque) GUI and a unified client for messaging and social networking - unlike a lot of big touchscreens, it also has a slide-out keyboard. A bit like the HTC TyTN from 2005 then…except for the fact it runs Android rather than Windows Mobile! Mind you, Motorola has managed to name the social network/messaging client “MotoBLUR”, which doesn’t sound too confidence inspiring. There’s a new version of Android, codenamed “Donut”; among other detail differences, it’s got support for special gestures on the touchscreen. People do seem to like social network gadgets.

The new gadget is going to be a very important product for Moto’s crisis-battered handsets division, a little like the Pre was for Palm. Palm’s numbers are out, and they’re not too pretty; a quarterly loss of $164.5m. “Adjusted” for the success of the Pre and Pixi, that comes to $13.6m - but what kind of “adjustment” improves your results by a factor of 10, except for one that basically consists of “leave out the bad stuff”? Anyway, they also announced that there will be no more Windows on Palm devices.

Sprint CEO Dan Hesse, who has the exclusive Palm Pre contract, stepped into the FCC review of exclusive contracts by saying that they were important for the industry but that it was “fair” for the FCC to examine how long they were. Meanwhile, there’s a political row on over Scott Walsten’s appointment to the FCC; although he authored a World Bank paper on the importance of public ownership in early telephone deployment, he’s also been accused of being far too close to the telcos during his time at the American Enterprise Institute.

His critics may have a point: Verizon’s CEO argued this week that it was “liberating” to stop worrying about the rate of loss of traditional PSTN access lines and concentrate on rolling out FiOS instead. However, VZ also holds that FiOS isn’t a utility like traditional telephony, and therefore isn’t subject to strict regulation; which doesn’t go down well in New Jersey, which gave them a large tax break to upgrade the utility service to 45Mbits 10 years ago…

Whilst we’re on the subject of regulation, Google has published the whole text of its response to the FCC in the Google Voice/Android row. The main point of interest is that AT&T denies any involvement.

In Europe, the Spanish regulator has some bad news for Telefonica - an enforced 25% cut in their wholesale ADSL rates and slightly more in the rate they charge for loop access. But it’s nothing like what Australian regulators have in store for Telstra.

Quite simply, Broadband Minister Stephen Conroy has offered them a choice of structural separation voluntarily or structural separation on the government’s terms. If they don’t choose they don’t get any spectrum. It seems likely that a structural separated Telstra would provide its existing ducts, poles, and trenches to the planned National Broadband Network company, thus greatly facilitating the rollout.

In infrastructure news, the VoLGA Forum announced that the problem of how to connect steamvoice calls on an LTE network has been settled. Appropriately enough, NSN immediately followed up with a claim of the first completed call with commercial LTE equipment. And T-Mobile USA announced its first HSPA+ deployment.

Overhyped WLAN sharing club FON has signed a deal with Ubiquisys to supply femtocells integrated into its routers; the next step is to find an operator that can provide the spectrum and terminate calls from the PSTN/PLMN. The good folk at Mapesbury/UK01 sound like a plausible candidate. On the subject of alternative mobile networks, David Burgess of OpenBTS took his homemade GSM net to Burning Man, and he’s blogging the technical problems he faced.

Yahoo! is using a new protocol that integrates OpenID for authentication and OAuth for selective authorisation, so as to pass rich user profile information between Web services with a single sign-on and without endangering privacy. Keep a close eye on this; just as the XMPP community is the most interesting in messaging, and the Asterisk one the most interesting in VoIP, the OpenID/OAuth one is where a lot of interesting things are happening about social information federation, privacy, etc.

The smart grid is one of the key elements in our forthcoming Use Cases report; fortunately, IBM and Cisco think it needs standardisation. Unfortunately they have both started standardisation efforts.

John Gardner-Cumming mocks the awful user interface of those Cisco desk phones; Nokia Labs, however, is trying to make Braille work on mobile devices, by translating it into pulses on the device’s vibrating alert. Now that’s what we call an iPod Touch.

In the content world, here’s this week’s weird business model; SongBeat 360, where the music is free to download but you have to pay for the search engine, as well as a variety of other features, like gig notifications from last.fm. It’s true that the Pirate Bay had much the same business model - make money from navigating free content - so it might work.

There’s been a dodgy iPhone update; so it’s perhaps appropriate that Apple is offering key App Store vendors dedicated personal support. Brough Turner reckons VoIP will be the driver for hi-def voice. And it’s all going horribly wrong between the Skype founders and Joost.

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September 18, 2009

Vodafone - Ever More Two-Sided Strategy!

Here’s a fascinating slide from Vodafone CEO Vittorio Colao’s presentation to a Goldman Sachs investors’ conference in New York this week. Note that Vodafone’s future strategy seems to be getting more and more Telco 2.0 - they want “efficient pipes”, i.e. a broadband network that’s cheap to run in the radio, transport, and core elements, “smart pipes” as wholesale services, and top-level products for the consumer market.


The first is a prerequisite of any telco strategy, which doesn’t make it any less important. The second and third roughly represent the two sides of Telco 2.0 - one facing the end user with traditional integrated services, and the other facing the upstream customers with disaggregated APIs providing access to key telco capabilities. Upstreamers who wish to sell to the end users can benefit from telco services, and the telco can profit from this trade, without there being a direct relationship between the telco and the end user.

Further, as new applications emerge to meet user needs, an app store or Litmus-like model can allow the operator to bring the most compelling ones on board and into the suite of services they market to end users. It’s well worth noting that Colao’s remarks during the presentation were enthusiastic about third-party partners, and he suggested that they might include developers who used only their billing and charging infrastructure.

It’s also well worth noting that, according to Colao, social network applications are outstripping video as a driver of traffic growth on Vodafone’s networks; a timely reminder that it’s communication, not “content”, that is the industry’s fundamental value proposition.

Of course, it’s not going to be easy to convert the biggest, baddest vertically integrated telco on the block into a Telco 2.0 operator. But we’ve been following their impressive progress closely - here, here, and here. There is, after all, $125bn in incremental revenue up for grabs.

We’re supporting this industry evolution through our continuing research into the subtleties of 2-sided business models, and most of all, through our forthcoming Use Cases project, which aims to document a wide range of two-sided opportunities in practice. Later this year, we’re going to be debating these issues with strategy executives from the entire industry, including several from Vodafone Group, at our European and American Executive Brainstorms.

Here’s a presentation that should tell you more about the Use Cases project:

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September 17, 2009

Orange / T-Mobile UK Merger: An Investor’s View

Summary: Orange and T-Mobile UK are merging, thereby consolidating two of the UK’s five mobile operators. What are the likely benefits and consequences, and the implications from an investor’s viewpoint?

This is a Guest Post from Arete Research, a Telco 2.0™ partner specialising in investment analysis. The views in this article are not intended to constitute investment advice from Telco 2.0™ or STL Partners. We are reprinting Arete’s Analysis to give our customers some additional insight into how some Investors see the Telecoms Market.

“Saucisse de Strasbourg”

FT and DT cooked up their very own knackwurst with the planned merger of two (not very) hot dogs —Orange UK and T-Mobile UK. A deal — in fact, any deal — to consolidate the UK wireless market has to be applauded, given UK market EBITDA margins of only ~22% in ‘08, now heading south again as a result of MTR cuts. DT should have exited the UK long ago (see DT: Turning a SuperTanker, Dec. ‘06), but stubbornly hung on, believing in the potential for data growth.

If DT’s data thesis was flawed, at least it struck a favourable deal with FT, taking 50% of the new joint venture (less a balancing payment of £1.25bn). This values its future equity participation at ~ £5bn, far more than it could have achieved in a cash disposal (recently reported offers from Vodafone/TEF are in the £3.5bn to £4bn). For FT, the deal looks a little less sweet, but still accretive. Synergy estimates (gross cost savings of £550m p.a. by ‘14) seem low-balled (unsurprising given both parents’ M&A synergy track record), leaving potential for a positive surprise. A Phase II EU merger control investigation is probable, leading to deal closure around mid-‘10, once remedies (e.g., separate wholesale division, return of spectrum) are agreed.

The other large UK players — Vodafone and O2 (Telefonica) — should also benefit from market rationalisation longer term, although they seem likely to target the JV’s customer base in the near term to improve their own scale positions. The move should benefit the whole sector, just as consolidation in Holland caused a mini-rally. Speculation seems likely to flit towards the next in-market consolidation: Germany (e.g., TEF buying KPN) or a second UK deal (e.g., Vodafone-3). Our favoured plays on the consolidation trend are Vodafone or KPN, although we anticipate there may be a bit more life in the old hot dogs FT and DT.

Market Share Onions

Orange’s UK service revenue share was 22.4% at 2Q09, T-Mobile’s was 15.6%, leaving the combined entity with ~37% share after elimination of intercompany trading. In contrast, Telefonica has a 29.0% share, Vodafone 25.9%, and 3 just over 7%. Mobile is a scale game, and after cost reduction, the combined entity should easily be capable of exceeding O2’s market-leading 26% margins.

Distribution Mustard

Although five operators make for a difficult environment, it is the UK’s reliance on third-party distribution that causes serious margin drag. Both Carphone Warehouse (the Best Buy Europe 50:50 JV) and Phones4U have significant market share in distribution and have traditionally managed to play operators off against each other, resulting in a high-churn, high-subsidy environment and consequently expensive SAC/SRCs (Vodafone customer costs were 36% of sales in FY08/09). Despite JV management claims of deep relationships with third-party distributors, the independent channel seems likely to be squeezed over time, which would be negative for Best Buy Europe’s UK returns (i.e., negative for CPW).


Synergy Ketchup

DT and FT estimate gross opex synergies of £445m by ‘14 (7% of combined opex in ‘08) and £100m in capex (15% of combined ‘08 capex). Other in-market consolidations have achieved greater cost reduction, nearer 15% of combined opex. In part, the seeming shortfall is due to the cost reduction efforts already undertaken by both sides in a difficult market, but more likely represents the parent companies’ desire not to over-promise given their synergy and deal track records (Orange-Amena, T-Mobile Austria, FT-TeliaSonera promises, etc., etc.). Capex synergies of only £100m would leave the combined entity spending £550m+ p.a.), probably reflecting the need for catch-up of T-Mobile’s historic lowly 3G spend. The JV seems positioned to attempt to maintain market leadership rather than to maximise cost reduction.

JV/Capital Structure Chips

JVs are always difficult, especially in telcoland, but the proposed management structure and safeguards seem logical. What is less easy to comprehend is the financial leverage of the new venture: on a pro forma basis, the £1.25bn of debt from the balancing payment implies ‘08 JV leverage of 0.7x (probably 0.9x in ‘10E). This is substantially below the leverage ratios of the two parent companies (~2x), so it seems strange that the proposed dividend policy of 90% of FCF implies further deleverage. We wonder whether some headroom has been left to allow for future deals, spectrum purchases, or even expansion of the JV into Europe. We also disagree with DT’s assertion that the deal will be net debt-neutral: DT will likely wind up lending £625m to an unconsolidated equity participation, implying consolidated net debt rises by this amount.

FCF Fizzy Pop

Even taking into account a 90% dividend payout, the £550m of gross synergies and substantial tax assets are likely to imply cash flow accretion in the low-mid single digits for each parent. In addition, fears of further significant declines in UK profitability are likely to wane, probably implying an even greater long-term uplift to longer-term FCF estimates. Our own forecasts, which take a rosier view of synergies than DT/FT (especially in terms of Distribution savings), are shown in Table 1.

Competition Clearance Bunfight

The proposed deal is likely to be subject to EU merger control. Once the parties file a Form CO (likely before end Oct. ‘09), the clock starts ticking on a Phase I investigation (25-35 working days). If, as we expect, this results in DG COMP deciding that the concentration raises “serious doubts as to its compatibility with the Common Market,” then there would be a Phase II investigation lasting 90-105 working days (with a “stop the clock” provision of 20 days). Given Christmas holidays, in all probability a final ruling would be made around mid-‘10. We imagine the EU will require remedies to absolve the competition concerns, and see that a return of some of the spectrum and the formation of an arms-length wholesale division are among the most likely remedies. It is difficult to judge whether the companies will find these too onerous, though given the fragile state of the UK wireless market, we imagine there will be considerable pressure to continue with the deal unless proposed remedies are unimaginably severe.

Valuation Hiccup

Our first stab at the valuation of the new venture suggests an end ‘10E EV of…

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Apps & AppStores: Litmus vs Apple AppStore

Summary: As O2 UK’s Litmus developer proramme matures into a global corporate project for Telefonica, we analyse the business model challenges it faces in becoming a vibrant community for developers and a value driver for the company.

Back in March, we said that O2’s Litmus developer site was “better than the Apple App Store”. Quite a claim, as it turned out. We based it on the deep integration of Litmus with the range of social and business enablers it provided in addition to the O2 network APIs. As well as a generous revenue share and quick payment, Litmus offered access to O2’s billing system to help cash collection, crowdsourced testing from Mob4Hire, Web-hosting services, and the tantalising prospect of access to an internal Telefonica venture capital group.

How is Litmus doing now?

In terms of product quality, Litmus’s recently added some highly interesting APIs. For example: the ability to query the current status and capabilities of a device, whether the user has sufficient credit to make a payment, if they have an inclusive data plan, whether they are in a WLAN hotspot, and whether or not they are currently roaming.

The importance of this kind of contextual data - call it Level 1 context - for delivering an excellent user experience with mobile applications and content is hard to overestimate, and it avoids most of the political issues that dog some other forms of context, like user behaviour and social graph data (call them Level 2 context). Overall then, the potential quality of application looks encouraging.

But how about quantity? At the moment, there are 36 pages of apps on sale at Litmus, plus three more for testing; at 10 apps to the page, that’s 390 apps. Many of them are versions of the same application for different devices or localisations, so the count of active projects is rather less than that. It’s also true that a lot of people submit their applications to every app store going, sensibly enough, so there is quite a bit of duplication.

So far, this is a respectable try, but it’s nowhere near Apple’s app count. However, as we’ll see later on, stacking up apps in an app store isn’t the only strategy available.

A further indicator on the quantity of development activity is that the forums at o2litmus.co.uk look worryingly quiet. Another traditional measure of activity at an open-source project is the traffic on the mailing list; there doesn’t seem to be that much going on. This is something Litmus has in common with the other mobile dev platforms - the Symbian and Forum Nokia ones are patchy at best. Perhaps this point from The Information Architecture of Social Experience Design’s list of anti-patterns for Web sites applies:
“a Potemkin Village is an overly elaborated set of empty community discussion areas or other collaborative spaces, created in anticipation of a thriving population rather than grown organically in response to their needs”.

So, why aren’t we seeing much more development activity at Litmus? It’s a big question, especially as Litmus is meant to be under active development. What are the warning signs of a community that might end up looking like this?


Growing with the Gorilla in the room

The critical challenge is getting to sufficient scale, which is vitally important to the success of platform business models like Litmus. O2 UK has 18 million subscribers; if 10% are conscious of apps, that is an addressable user base of c1.8 million.

Further, it’s probably true that iPhone owners tend to be power users, being a self-selected group of early adopters. (According to Ray da Silva of Vodafone, iPhone users exhibit 7 times greater usage than the closest rival group, BlackBerry users.) And O2 has the exclusive right to distribute iPhones in the UK, so the bulk of O2’s power users are probably concentrated in its population of iPhones. Those 1.5 million O2 iPhone users have the App Store to go to, which is integrated with the hardware and software and prominently placed on the device. If our estimates are close, that leaves about a fifth of that number, or 300 thousand or so who might use Litmus.

So, Telefonica / O2 faces a strategic dilemma. How should it balance investment in creating and serving the huge (but ultimately Apple’s) iPhone community and the nascent and home-grown Litmus eco-system?

And, as we’ve often pointed out, telcos consistently overestimate the degree to which their subscribers constitute a real community or want to have any affinity with their operator. Apple, at least, can claim to be the proud owner of a cult, an image it works extremely hard to maintain. Probably no other hardware vendor in mobile can claim that, and the OS vendors aren’t much better off although Symbian tries hard.

This is important, because active developer communities tend to be driven by a smallish core group of members. Recruiting new members of this group is critical for long term survival. On the other hand, the problems, ideas, feedback, and money coming into such a community usually originate in another community core group - the user elite. The line between the power users and the developer community is necessarily fuzzy, but it’s crucial that you have enough people in the user community who are passionately engaged with the product to support the developer core group.

Fragmentation is another challenge resulting from insufficient scale; it’s a serious problem if you have to keep refactoring your code to work on dozens of different devices and OS platforms. Equally, being fragmented between operators is no better; in terms of scale, developing for Symbian is going to beat developing for O2 UK.

Put together, these issues add up to a serious overall challenge to the viability of Litmus in its current form as anything other than a test of limited scale and ultimately limited value.

Litmus Responds…

So, clearly it was going to be interesting when James Parton and Jose Valles Nunez, from Litmus and Telefonica’s Open Innovation group respectively, dropped into the Telco 2.0 offices.

The first interesting point that arises is that the Litmus group within Telefonica is very keen not to be considered an appstore. You might think this is a brave decision; everyone in the industry is obsessed with them since Apple’s big hit, and a week doesn’t go by without someone launching one - whether an operator, a vendor, a third-party store like Handango or Symbian’s app warehouse, or a gaggle of hackers doing an unofficial one for iPhone apps that Apple don’t like.

The obvious corollary to that is “well, what is it then?” Parton argues that the real role of Litmus isn’t as a first-line product, but rather as a way of crowdsourcing decisions about which applications to promote to the mass market through O2 Active - a form of “co-creation” with the community of power users and developers. Rather than relying on the judgment of product managers in Slough, the idea is to serve up new ideas to a self-selected group of neophiles and to see what sticks. Litmus is hoping that this will both provide useful feedback and also reduce churn by binding their user elite into the company more closely.

So far, they report that the extra features like hosting and testing haven’t been much used, and were perhaps a case of “over-engineering” the product - most of the developers involved are primarily interested in Litmus as a route to market, whether as an app store or as a sort of X-Factor for applications that might make it to the official O2 deck. However, they are keenly concerned about recruiting more developers and about the perception of a lack of critical scale.

Scope for Business Model Innovation

So perhaps Telefonica, and the industry as a whole, should be looking for other organising principles for developer communities? Rather than being operator- or vendor- specific, perhaps they should be application-specific or problem-specific?

To read the rest of the article, covering:
  • Innovation community motivators: Shared Problem vs Technology Communities
  • The risks of fragmentation
  • Radical business model innovation needed by Litmus and other developer platforms

…members of the Telco 2.0TM Executive Briefing Subscription Service can click here for the full report. Non-Members, please see here for how to subscribe, here to buy the individual report, or email contact@telco2.net or call +44 (0) 207 247 5003.]

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September 14, 2009

Ring! Ring! Hot News, 15th September 2009

Telco 2.0 Top Stories:

In other news: The end of TV ads? Raise you the end of fixed voice; China Mobile moves into Symbian’s giant app shed; spectrum upshot of T-Orange merger; Spotify hits the brakes; Rhapsody for iPhone; Vodafone outage; Vodafone launches better voice for SMEs; SingTel buys Eircom; Singapore NBN taps ALU for OSS BSS, in orgy of TLAs; US telcos - actually, we would like the money; Google’s latest SSN sails and dives deep; Indian 3G auction is go in December; AT&T adds more HSPA; NEC/Hitachi/Casio merger; weird Sony Ericsson gadget is weird; list of Ovi Maps apps; Nokia acquires startup; next INQ to run Android; DT-Sprint horrors rise from the deep; how M-PESA agents’ businesses work; Zimbabwe telco cuts everyone’s bill by half in desperate bid for cash

The ups and downs of advertising. Here’s probably the world’s number 1 in targeted ads and data mining, Tesco spinoff Dunnhumby, creators of the Tesco Clubcard. Their profits were up 71%. Great, no? We could really do with some of that in telecoms…so you’re probably already thinking of all those hard disks in the billing department. [Ed. - Martin Hayward, Dunnhumby’s Director of Strategy & Futures will be joining the panel on ‘Customer Data 2.0’ at the EMEA Telco 2.0 event on 4-5 Nov in London.]

And Bruce Sterling points to figures showing that US TV advertising doesn’t sell. Every major buyer except Verizon and every sector except for “Legal Services” shrank their ad spending; Sterling thinks the era of big TV is drawing to a close, with seismic consequences for American culture. (He’s wrong; nothing can have changed if they’re still suing each other.) Surely the decline of broadcast TV ads must open up some huge opportunities?

Unfortunately, the Electronic Frontier Foundation would like you to know that scientists are increasingly able to look at big piles of data usually considered not to be “personally identifying”, and identify the people in it, which immediately converts it into the legally protected personally identifying sort. It’s tantalising; this research proves, more than anything else, how valuable the data resources are, but at the same time it makes it even more clear how difficult it will be to utilise them. And if the only major advertiser growing its spending is a telco, it’s hard to see how the sector could actually benefit.

Something else on the way out is fixed-line voice; Sri Lanka Telecom says its revenues just fell 18% in 1H09, and an average middle-class family of customers have three mobile phones. As Boris Nemsic once said when he was heading Mobilkom Austria, “fixed mobile convergence? we’re offering unlimited national minutes…”

On the other hand, the recession hasn’t stopped anyone surfing the ‘net; Telegeography reports that international traffic growth actually accelerated in 2009, with 9.4 terabits/s of new capacity coming on line and, of course, some parts of the world getting their first submarine cables.

In similarly optimistic news, China Mobile is opening its own Symbian app store, using Symbian’s “giant app shed close to a motorway junction”, Horizon, as the back end. It’s a big hit for Nokia, and strongly suggests that the final form of JIL might have a lot in common with both Horizon and the Web Runtime flavour of JavaScript-based widgetry.

Back in the UK, the spectrum implications of T-Mobile and Orange merging are many and complicated, but they are likely to remain entirely on hold until the general election. However, no amount of merging will help if the entire network falls over.

It probably won’t have been the iPhones running Spotify whodunnit. However, Spotify itself has been forced to slow down handing out subscriptions to keep from frying its infrastructure, just after its iPhone and Google Android clients hit the market. (Rhapsody’s iPhone client is out, too.) The problems of distributing heavy content…[Ed. - Spotify will be the panel on ‘Consumer Services 2.0’ at the EMEA Telco 2.0 event on 4-5 Nov in London.]

The BBC knows a thing or two about ‘em, which is why they are inviting other broadcasters and content providers to join them in making use of the iPlayer infrastructure. They were understandably keen to avoid any suggestion that others’ content might appear under BBC branding, but the idea of sharing ingestion, storage, and CDNing is considerably less controversial and would help a lot in integrating with broadcast media, IP multicast, and P2P distribution systems. You might even describe it as a “platform”.

Vodafone, meanwhile, were having a spot of bother with their femtocells this week, although Telco 2.0’s Keith McMahon says his is working perfectly. But then, the error was apparently that users could hear inbound callers but not talk back to them, so perhaps he’s just been unusually quiet. More importantly, VF announced a hosted, better voice & messaging service for small businesses, based on a big wholesale deal with BT to provide the hosted carrier-VoIP service.

Singaporean operator ST Telemedia, meanwhile, bought Eircom, and there was more progress on the city-state’s hugely ambitious open access fibre infrastructure plans. Alcatel-Lucent will be providing the wholesale element (NetCo)’s OSS-BSS gear.

In other broadband news, it looks like US carriers’ decision to stay out of bidding for stimulus funds was all talk, after all. But then, who ever saw telcos turn down a government subsidy?

Telephony Online, meanwhile, links up Google Voice and the recent announcement that Google Checkout might get finer-grained billing and subscription capabilities, and arrives at a worrying answer. Google’s submarines are everywhere….

Indian 3G auction news is in. The social event of the season will be held in December. Vendor vultures are advised to pack their full collection of plug adapters and book their tickets for the forthcoming slugfest now. (Although you know Ericsson or ALU will probably get the gig anyway.) Vendor vultures are also advised that AT&T is putting in more HSPA networks.

In Japan, NEC, Hitachi, and Casio have merged their handset making operations, which together add up to 15% market share there and not much anywhere else, perhaps because they have phones like this over there.

But then, Moldova is about to get the world’s first hi-def voice service, through Orange’s local operation. The technology involved is the AMR-WB codec, and so far there’s exactly one handset available. You will not be the least bit surprised to know that it’s a Nokia, where they have a phone for every conceivable combination of technologies except “both useful and fashionable” - specifically the 6720z.

We jest; Forum Nokia has a list of Web applications that have chosen their Ovi Maps API, and they’ve acquired social location start-up Plum, which will be folded into the Services unit, that stygian void from where start-ups return only as soul-emptied, twisted parodies of their natural form. (Ask Bruce Sterling, who we quoted before.) It’s like that when you learn Things That Man May Not Know; which probably includes the AMR-WB codec.

INQ, chooses to go with the dystopian future of Android rather than the Lovecraftesque deep past of Symbian. At least you can hack the robots and shoot the zombies (in the head, mind).

But it’s clear that the forces of the Weird are at work this week. Deutsche Telekom was rumoured to be considering a merger with Sprint-Nextel, presumably using the T-Mobile UK money. Again. “Sources” were “unclear about how the technology mismatch would be solved”; you bet they were. It’s the sequel to Converge This!, our 2008 screwball comedy about two OSS-BSS engineers, Sven and Sven, who have to integrate the back office systems of two telcos who use literally every network protocol in existence.

Finally, a tale of two cities. On the one hand, the CGAP blog reports on some fascinating field research on M-PESA’s lifeblood, agents. Doing M-PESA transactions is 3.2 times more profitable than selling airtime; but it does require relatively large amounts of capital tied up in the float. Safaricom is trying to reduce this by recruiting more wholesale aggregators, but it’s still a problem. An agent needs to do 30 transactions a day to break even, they reckon; the average agent is doing 86.

On the other, Zimbabwe’s state telco is going to cut everyone’s phone bill by 50% in an effort to persuade people to pay up.

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September 8, 2009

M-PESA: Agents are the Key to Mobile Money Transfer

New data from M-PESA shows clearly how its success is directly related to its network of trusted agents. This is further support for our repeatedly argued point that the biggest possible network of trusted agents - shops, street vendors, anyone who sells your pre-paid airtime vouchers - is vital to the success of any mobile money project. Get the agent model - their recruitment and compensation, the wholesale process that supplies them, the OSS back-end that settles the transactions, the fraud prevention and audit measures applied to protect users’ money - right, and you’re 90% of the way to success. A presentation by Safaricom’s head of investor relations, Les Baillie, allowed us to quantify this with actual data - specifically two charts, one of subscriber growth and one of agent recruitment.

We read off the data from the charts, and plotted the two series together. The orange line shows subscriber numbers, on the left scale; the blue line shows agent numbers, on the right scale. Clearly the two series are highly interdependent; the correlation coefficient is 0.96, or near perfect correlation.


We could go further, and we did; graphing subscribers against agents and using a semi-log plot to cope with the scale difference between millions of subscribers and thousands of agents, we found a strong linear relationship, with an R-squared of 0.93, with the slope of the curve - i.e. the marginal productivity of an agent in terms of subscribers - being given by 685x. That is to say, during Safaricom’s roll-out of M-PESA, adding an extra agent was worth 685 new M-PESA users.


A possible criticism of this analysis is that the causality might be reversed; more subscribers demand more agents. But it’s impossible to become an M-PESA subscriber without access to agents who handle M-PESA transactions, so agents have to lead subscribers to some extent. And history supports this view.

The original roll-out of mobile telephony in the 1980s, and even more so the roll-out of GSM in the 1990s, was powerfully boosted by the ecosystem of resellers and other agents that grew up around the operators, seeking out new markets. 80s veterans in the UK recall resellers who worked out of their car boots, calling regularly at Vodafone’s wholesale division to fill the car with handsets.

Later, the launch of pre-paid GSM in the late 90s made mobile a mass proposition and sent us on the way to 4 billion subscribers. And nothing was more critical to making pre-paid work than getting the vouchers out to the market - which meant, crucially, agents. This went double for the roll-out into the emerging markets in the 2000s. It has always been the case in the GSM industry that the macro-economy of network operators and infrastructure vendors has been interdependent with a micro-economy of resellers, agents, shops, MVNOs, and God knows what else.

[Ed. - we’ll be discussing Mobile Money business models at the EMEA and America Telco 2.0 events in November and December and sharing new Use Case work with the participants.]

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When should wireless operators share network resources?

Ed: In some circumstances, and to support evolving and new business models, it may be in everyone’s interest to allow customers to access certain resources across all available wireless networks, for example when bandwidth hungry users cause network problems for other users. So argues Chris Hoover, VP, Product Management at Openet, in a guest post below. (Openet are Platinum Partners of the Telco 2.0 Initiative).

A recent Wall Street Journal opinion piece by Andy Kessler calls for operators to provide access to their “airwaves” to anyone. Mr. Kessler’s message was that individual subscribers could benefit from expanded choice of service (e.g. by choosing whichever network suited, similar to a Wi-Fi hotspot).

Such a scenario may be good business from a Telco 2.0 perspective. Enabling ad hoc access to networks provides a choice not only for subscribers, it also provides a choice for operators regarding when and how network resources are available. This flexibility and control may be the key to ensuring the QoS and availability guarantees inherent in many next-generation business models.

To understand why, it’s useful to first determine the role of network resources as a key to any telco business model.

The Building Blocks of the Telco Business Model

The telecommunication business is built on a model that features three key questions:

  1. What resources? What network resources should be provided to this subscriber, and under what circumstances?
  2. At what cost? How much does consumption of the network resource cost?
  3. How paid?Who is going to pay for the network resource?

This model fits nicely into various standard service offerings:

  • Voice calls (Resource: SS7 connection/Cost: Flat per-minute rate/Paid: decremented from pre-paid account),
  • Data session (Resource: PDP connection/Cost: Included in monthly flat rate/Paid: Post paid by subscriber),
  • Roaming call: (Resource: SS7 connection for roamer/Cost: Per roaming agreement/Paid: Inter-carrier reconciliation)

To date, these business models treat access to network resources as a buffet. By paying, you can eat all you like for as long as you like. As bandwidth becomes a scarce resource, however, it becomes impossible to give everyone carte blanch access to it. Next generation business models are thus more akin to a traditional restaurant model, in which each item is associated with a cost.
And sometimes restaurants have invitation-only special events; hungry passers-by must go elsewhere for a meal.

How Resources Relate to Next-Generation Business Models

Skeptical that bandwidth is a scarce resource? Consider AT&Ts experience with the iPhone.

According to a recent New York Times article, iPhone use is causing dropped calls, spotty service, delayed text and voice messages and glacial download speeds as AT&T’s cellular network strains to meet the demand. Another result is outraged customers.

In Japan, 80% of Softbank’s data traffic is people watching YouTube videos on a flat rate iPhone data package. The telco industry continues to experience a dramatic increase in demand for network resources, especially related to wireless data. The revenue associated with that consumption is essentially flat—indeed, it is decreasing as a function of demand.

These - increased demand and flattening revenue - are the two drivers behind Telco 2.0, which is devoted to exploring how the industry can evolve to maintain a healthy business even as the environment in which it operates changes.

Effectively managing network resources is the foundation of next generation business models. These models require an expansion of what is meant by “network resource,” as well as flexibility in allocating, rating and paying for these them. In every case, this requires real-time control of both resources and payment, including the ability to selectively allocate resources when they are scarce.

Consider some specific examples of business models discussed within the context of Telco 2.0:

Content Distribution

Networks have much potential in delivery of personalized, on-demand content such as video. The “resource” is not vanilla bandwidth, but QoS; this includes management of such variables as packet forwarding prioritization, maximum and minimum bit rate and RF spreading factor. Poor quality will result in audience abandonment and the failure of the model.

Digital Banking

To provide viable financial exchange services, particularly real-time services such as those targeting the “unbanked,” carriers must be able to guarantee access and low latency. If users are unable to access their accounts or reliably exchange funds, the business model will fail.

Bundled Resources

Access can be bundled so that it is an intrinsic part of a purchase; the most familiar example is the Amazon Kindle, with its bundled “whispernet” connectivity enabling users to transparently browse, purchase and download books onto the device. Heavy congestion that inhibits Kindle access directly impacts Amazon’s revenue stream — and the viability of the business model.

Business services

“Cloud Computing” services directed at the enterprise are gaining popularity due to benefits such as scalability, minimized hardware and improved efficiency. These services include data storage services, email and web-based document production and collaboration. They are necessary because mobile carriers are now on the hook for always-on performance to support business applications in the cloud—requiring more network bandwidth and better performance than ever before. Congestion that precludes access to business-critical services will cause the business model to fail.


Each of these scenarios implies real-time provisioning of resources and real time allocation of charges, depending on the service and the purpose for which it is accessed.

If a network access point is busy serving customers using devices such as the Kindle, delivering on-demand video as part of an agreement with Paramount and supporting access to enterprise services, it may in the best interests of both the operator and the subscriber to enable ad-hoc access to alternative networks for basic data connectivity service. By doing so, they can sell basic connectivity to anyone most of the time, but can selectively allocate resources when demand exceeds supply.

One implication of this is a business model in which some specific services (such as banking, video viewing, email access, etc) are provided with access “built-in.” For these services, access is an intrinsic feature with an associated SLA. Services without built-in access (such as general web browsing), are accessed ad hoc through the network that has the best connectivity in a given circumstance.

Using proven methods to open operator airwaves on an ad-hoc basis provides the flexibility for subscribers called for by Mr. Kessler in the Wall Street Journal. But it also provides flexibility for operators, enabling them to compete using a variety of innovative business models. This continued adaption to consumer behavior and evolution of operator business models is the key to continued performance, relevance and ultimately, profit.

Openet’s CTO, Joe Hogan, will be among the stimulus presenters at the 7th Telco 2.0 Executive Brainstorm on the 4th-5th November in London.

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September 7, 2009

Ring! Ring! Hot News, 7th September 2009

Telco 2.0 Top Stories:
  • APIs and Enablers: Nokia launches Ovi SDK
  • Digital Advertising: Big push for privacy legislation - will it kill or cure LBS and targeted ads?
  • Online Content: New Nokia Comes With Music phones target Spotify head on
  • Voice & Messaging 2.0: Orange: future of work is decentralised offices, not telecommuting
  • Strategy & Finance: Bidding war on for T-Mobile UK

In other news: Nokia still loves stalkerware; new blog about Nokia musicphones, entirely useless to 90% of our readers; Symbian for mass market, Maemo for high end; Nokia “has enough operating systems for now”; MoBot, the mobile scripting tool for power users; NSN chief leaves, Nokia services chief takes over; Sony Ericsson’s PS3 streaming gadget; Verizon joins TV-streaming alliance; Gmail outage; Kai-Fu Lee quits Google.cn; sense from Telephony Online about VoIP and unicomms; new HTC gadgets; Facebook friends for sale; China Unicom and Telefonica swap shares; funny filesharing figures from the BPI; French teachers want mobiles back in the classroom; Cisco dishes out rewards for failure; Digicel brings GSM to Nauru.

It’s here: at Nokia World this week, Nokia announced the launch of the first set of Ovi developer tools. There will be a software-development kit for Ovi applications in general, based on (inevitably) HTML, CSS, and JavaScript (it will be interesting to see if it conforms to the same standards as JIL), and there will also be APIs for Nokia Web services. To start with, they’re offering access to their map server and to the server which generates turn-by-turn navigation instructions. At the moment, you have to pay for this last service through Nokia’s Maps application, so one wonders what the business model is.

You also have to wonder how valuable location data will be in the future; given that GPS and GALILEO and probably GLONASS for all we know are free-to-air and the cost of the hardware is falling fast, it’s yet another thing where telcos can’t afford to hang about. Some Nokia Series 40 - i.e. cheap - devices are already “fitted for but not with” GPS, having both Nokia Maps and support for a Bluetooth GPS module. And there are GPS receiver SIM cards on the market.

Unsurprisingly, the Electronic Frontier Foundation is gearing up for the coming fight over privacy, LBS, and targeted ads. As Rich Karpinski points out at Telephony Online, there is a major push on to legislate in the US this autumn, and the proposed texts would impose highly restrictive conditions on behavioural and location-based ads. Karpinski argues that the opportunity to monetise the CDR pile might close before it even opens; we’re not so sure.

One of the main barriers to making creative use of customer data has been uncertainty about the legal position; another has been the justified fear of causing a privacy Chernobyl that would forever destroy user and advertiser confidence. It may well be rational to welcome legislative restrictions as a form of self-signalling - if we are constrained by law to respect users’ data sovereignty, we can act with confidence so long as we observe the law.

Nokia, however, is still keen as mustard on pushing out location data as part of a status broadcasting application.

They also announced a new line of phones optimised for Comes With Music and priced to compete with Spotify. Note the trend - hardware that wants to be a Web service. There’s a new blog at Forum Nokia all about the X-series devices, but it’s in Chinese.

Jonas Guest, VP in charge of N-series devices, says that Nokia is planning to use Symbian for the mass market and Maemo Linux for “high end devices” such as the N900; but there’s still no word as to whether the “high end” will include any phones, as opposed to nonselling pushmepullyous like the N800/810/900. He also says that:
Since Nokia has also developed netbooks utilizing Microsoft’s Windows 7 platform, Nokia has enough platform diversity in its products and there is no need for Nokia to adopt any more operating systems,
Phew. Are there any they haven’t already done? Perhaps FreeBSD or OpenSolaris 10? In other Nokia news, the results of their hacker competition are out. The stars are probably an application that turns your phone into a credit-card terminal, and MoBots, a graphical toolkit for non-technical users to develop their own micro-applications. The Register is reminded of Lego Mindstorms; we are thinking of HyperCard

Across the corridor at NSN, meanwhile, Simon Beresford-Wylie takes his hat and coat, and makes way for Rajeev Suri, whose last job was running Nokia’s services strategy. Oh…

Sony Ericsson announced a phone that streams media over WLAN from your PlayStation 3; what would really be interesting would be if it streamed over the cellular network, so you could use the PS3-phone pairing as a Slingbox-like system. Relatedly, Verizon has joined an alliance to develop a “remote user interface” standard based on the existing DLNA home automation specs.

Sounds grim, but this is actually about streaming TV and other media around your home from a single set-top box/DVR/PVR/media centre, without needing a smart endpoint like another STB in every room, so it’s actually reasonably interesting. As are the other participants - note that satellite broadcaster DirecTV is in there.

Google, meanwhile, had a major outage this week, when Gmail became unavailable for an hour. Actually, the Web interface went down - the actual e-mail servers were operational throughout, which made it a slightly weird experience to monitor the massive mailing list threads the outage generated through one’s Gmail account. Unrelatedly, Kai-Fu Lee, the head of Google in China, quit on Friday, giving rise to much speculation about tension between the Googlers and the Chinese government over censorship.

We’ve also been seeing a bit of a VoIP revival lately, what with the sale of Skype being rather less of a financial tragedy than expected. Telephony Online makes the excellent point that the current wave of applications are more about unified comms than they are about PSTN-clone cheap calls - as we keep saying, if the price of voice is steadily approaching zero, there’s no room for anyone, so to have any chance of creating value you need to understand why people make phone calls and create better voice & messaging services.

Orange, for example, has been doing some crystal ball gazing and chicken entrails examining; they reckon that the future of work, whether it’s orange or not, will be localised and decentralised, but the office as an institution will survive because people need face-to-face interaction and a division between work and everything else. Instead, companies will consist of large numbers of semi-autonomous teams, widely distributed.

So, what kind of telecomms services will they need? We suspect that traditional canned PBX systems and high-spec video telepresence suites probably serve the needs of typical telecoms companies circa 2003 more than anything else, and we’ve said before that the industry knows remarkably little about the reasons why people use its product. Perhaps eliminating negative-value calls and facilitating the transfer of social context is the answer. It’s much to Orange’s credit that they are at least asking the questions.

Now, back to shiny gadgets. HTC announced the new version of its Touch HD; the interesting element here is that it’s going to run Google Android, not Microsoft WIndows Mobile like the original Touch and the great majority of HTC’s products so far. The other interesting element is that the CPU is clocked at 628MHz; Samsung’s Jet is 800MHz. Which is scary - because of the ACPI power management’s battery restrictions, my laptop spends most of its time running its cores at 800 each…

Sprint is the launch carrier for another HTC device, the “Hero”, which will be the second Android gadget to market. And Apple product launch speculation is here.

Meanwhile, Facebook opened up its Connect API to more developers; at the same time, however, something very bad happened to it. An Australian PR company is offering Facebook friendships for sale - you pay them and they sign ‘em up. This is worrying for the value of Facebook in general; signalling theory suggests that a valid signal needs to be significantly more costly to produce for actors who are faking. Therefore, Facebook friends are valuable because they put in the time to show they care - if you don’t, it’s not fun, it’s work.

But if this form of social signalling is now valuable enough that people are willing to pay for it, it’s rapidly going to be completely meaningless - there is enough money in the world to buy any conceivable number of Facebook pals. This is probably great news in the short term for the site itself, but very bad news for its existing userbase. It’s time to move on; especially if you work for PC World, whose employees’ secret Facebook group devoted to mocking ignorant customers has been exposed. Key quote:
Despite criticising some customers for being “ignorant”, many of the group’s 3,000 members have posted comments under their real names.

In more serious UK news, the bidding war is on for T-Mobile UK, with both Vodafone and Telefonica breaking cover - the price is variously reported between £3bn and £4bn, and the regulatory impact is keenly awaited. It is very likely that OFCOM will insist on major concessions before it greenlights a merger; we’re guessing that the 900MHz refarming issue is about to be resolved, one way or another. And what will happen with the MBNL and Vodorange infrastructure sharing deals?

Telefonica, by the way, has become the first Western carrier partly owned by Chinese interests, under a deal with China Unicom which sees the two companies each take a $1bn stake in each other.

The British music industry lobby gets caught peddling funny figures on the numbers of illegal filesharers in the UK; their study both arbitrarily increased the percentage of people self-reporting filesharing by a suspiciously round number, but also boosted the number of people online in the UK. Neat.

Also this week: French teachers asked whether they should stop confiscating mobile phones and instead turn them into teaching aids, and GSM landed on Nauru, courtesy of tireless island investors Digicel. Finally, Cisco Systems missed targets but paid execs huge bonuses - no real news there then.

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September 2, 2009

New Telco 2.0 ‘Use Cases’

We mentioned before our research agenda for rest of 2009 and 2010. As a key part of this we’re in the middle of a project with leading x-industry figures developing new ‘Use Cases’ to bring to life the two-sided business model concepts we’ve been promoting. The areas we’re focusing on are:

  • Digital Marketing and Advertising 2.0: Exploiting Telco data
  • Mobile Broadband 2.0: Managed data offload service
  • Digital Money 2.0: Mobile Banking in mature markets
  • Digital Utilities 2.0: Telcos role in Smart Grid
  • Voice and Messaging 2.0: SME productivity platform

These (along with case studies from inside and outside telecoms) will be available in a report in November and some will be presented and discussed at the upcoming Telco 2.0 Executive Brainstorms in Nov (EMEA, London) and Decembe (AMERICA, Orlando). More here.

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Key US Events in November/December

If you’re in the USA, focused on mobile, and can’t make it over to London on 4-5 November for the 7th Telco 2.0 Exec Brainstorm, we’d strongly recommend the excellent Open Mobile Summit in San Francisco. As normal it has a strong line up of senior speakers and panelists which stimulates a vibrant debate. We’d be speaking there ourselves if we didn’t have a clash of diaries - we’ll coordinate things better next year! Early bird discounts are still available up to 18th Sept.

In the meantime, our own AMERICA event (the 8th Telco 2.0 Executive Brainstorm, on 9-10 December in Orlando, Florida) is shaping up extremely well: senior stimulus speakers from innovators like Sprint, Verizon ODI, YouTube, BitTorrent, C-Beyond, Brightcove, Nokia, and, delighted to say, Second Life. Watch this space for more…

At both the EMEA and AMERICA Telco 2.0 events, Telco 2.0 analysts will be presenting new ‘Use Cases’ around two-sided business models too. There are ‘distance participation’ packages for both if you can’t travel/have diary clashes, but would like access to the input/output.

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September 1, 2009

Ring! Ring! Hot News, 1st September 2009

Top Telco 2.0 Stories

  • Apple App Store “selling $200m a month”?
  • Hulu pulls ahead of Time Warner Cable
  • Nokia dives into mobile banking; Orange buys digital ad network
  • EBay/Skype - the end of the affair
  • Hackers assail GSM A5/1 encryption

In other news: Apple accepts Spotify app; broadcast still the best way to deliver live content; now that’s what we call LBS; 12% broadband growth in France; Brough Turner forecasts LTE for 2012; Maemo Linux gets telephony API; IMS still hoping for video-sharing; mystery Vonage surge; heads roll at Clearwire, again; Intel: data centres can safely warm up; SkyTap’s VPN cloud; Cloudera vs VMWare; semiconductor sales up 5.3%; new Motorola Android gadget; iPhone goes to China - no revenue sharing there; Samsung’s app store; why m-banking is right for Canada; taking over the Internet; Home Office gets it wrong

Just how many applications is Apple selling through the App Store? According to AdMob, it could be as much as $200m worth for the month of August; there’s a good row going on over at GigaOm as to whether their methodology is likely to have produced valid numbers. It’s probably worth pointing out that the release and huge sales of the iPhone 3GS might have skewed the month, what with all those new iPhones getting apped-up at once. But it does tend to suggest that the App Store is a genuine business.

Meanwhile, they’ve finally accepted the Spotify iPhone app; despite all the hype about Spotify, this seems to suggest Apple is confident that owning your music beats renting it and that download beats streaming. One of the basic rules of any mobile application is that connectivity will be interrupted and you’d better deal with it, so Apple’s approach has an advantage to begin with.

The big streaming application is of course video; Telephony Online reports some interesting data on the demographics of US TV networks. Essentially, TV is becoming a taste for the elderly; the youth get their TV on the Internet or at least via DVRs and the like. The median age of a CBS viewer is now 55. Fascinatingly, Hulu now has 38 million viewers, or rather more than Time Warner Cable, although this is a long way behind YouTube in terms of sheer audience numbers.

(For the record, Telco 2.0 attempted to watch a major live sporting event this weekend via the BBC’s Internet feed; despite everything Akamai EdgeFCS could do, the feed went down just after Warrington scored their second try and never came back up. For some things, broadcast will never die; it’s a question of the right delivery mechanism for the content in question.)

At the opposite extreme of the content spectrum, mobile payment is the purest example of bits that carry disproportionate value. Nokia has leapt into the field this week, announcing a new service called - obviously - Nokia Money. It’s a white-label version of Obopay, the m-banking application Nokia acquired not so long ago; apparently, they are setting about recruiting agents for it, and more details will be forthcoming at Nokia World. We’ve said before that the real Nokia services strategy might be their Life Tools project for developing-world small businesses; this seems to be an obvious fit, a useful and good enough service (perhaps a bit like craigslist?).

Orangeacquired Unanimis, a British company that acts as an aggregator for digital advertising. Orange is hoping to increase its revenue from “new growth areas” from 9% to 20% by 2012, and much of this is expected to be advertising; no terms were made public, but Unanimis made revenues of £21.7 million last year.

Meanwhile, you’ve heard of LBS adverts? Here’s Nokia with a rather different take on the idea; rather than your phone going off with an advert as you pass the shop, the shop goes off with a phone as you pass the advert. Seriously; live video screens are demonstrating the N97 home screen’s live RSS ticker with actual data feeds from the Internet, to anyone who passes by.

The horrible tale of EBay and Skype is coming to an end. A group of private investors led by Marc Andreesen is going to take the service off their hands; it’s not clear how they will deal with the founders’ inconvenient ownership of the core intellectual property, but it is fairly clear EBay lost a fortune on the deal. It’s going to be interesting to see what Andreesen does with 10% of the world’s international telephony.

In France, broadband penetration is growing at a 12% clip, and there are already 5.6 million households who have cancelled all France Telecom services. With Free.fr, probably the best ISP in the world, around, who wouldn’t?

Brough Turner looks at the history of 3G standardisation and forecasts LTE deployment for 2012, based on the usual time taken to move from specification freeze to substantial deployment. GSM, meanwhile, passes the four billion subscriber mark….and attracts a team of hackers determined to breach the air interface encryption. The man behind it is the same guy who cracked the NXP MiFare smartcard in 2007.

The aim is to force carriers who haven’t already dropped the A5/1 crypto to upgrade to A5/3, considered a quintillion times harder to breach. Unfortunately, the GSMA’s response has been to point out that the task needs a lookup table of 2 terabytes, or “a pile of books 20 kilometers high”. Or to put it another way, a pair of 1TB hard drives you could buy in any computer shop for £70 each.

Meanwhile, Nokia’s Maemo Linux platform is getting a full telephony stack, which promises more innovation than this story:
With the introduction of IMS, there will be a fundamental shift from plain vanilla voice calling to rich multimedia calling( Video, Picture, message sharing ).
Video sharing. That’ll do it. Again…of course, the king of applications is still voice. Vonage shares surged this week, for no reason anyone could make out except perhaps the possibility of doing something interesting with a mobile application. They certainly need it, as falling prices are wearing down all the PSTN-clone operators across the board.

More heads roll at Clearwire; chief strategy officer Scott Richardson is out, and the job itself has been abolished, while the CFO David Sach has been replaced by Morrow’s old boss at Borland Software, Erik Prusch. And there’s a new post of “president of strategic partnerships & wholesale” for Teresa Elder, who was the CEO of Vodafone Ireland while Morrow was at Vodafone Europe. There’s more about her here.

Richardson was hired from Intel’s WiMAX program; whatever happens at Clearwire, however, Intel will always be important for the whole industry. Because they do things like this - according to their research, major data centres are usually cooled more than they need to be, wasting power. Tests apparently show that Intel chips are more tolerant of heat than previously thought. In other infrastructure news, SkyTap is the next cloud computing company to provide an IPSec VPN, so you can link the cloud directly with your internal network - Amazon did something similar last week with their Virtual Private Cloud. Cloudera’s Google-clone cloud, meanwhile, is moving into VMWare’s facilities.

No surprise, then, that the semiconductor biz is looking up, with sales up by 5.3%. Motorola has a new Android gadget out using a Qualcomm MSM chip; and the iPhone is going to China. Note that China Unicom said no to the revenue-sharing deal Apple drove with everyone else; they’re just going to wholesale them.

Sony will be shipping Google’s Chrome browser on new PCs; Samsung Europe has an app store. There’s an excellent post here on why mobile banking is a good idea for Canada; and the US government wants significant powers over the Internet.

And finally, the UK Home Office publishes security instructions for a business that doesn’t exist, commissioned from an organisation that doesn’t exist either.

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

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