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February 28, 2010

Telco 2.0 News Review

  • Developer Communities: Apps: 2nd factor in device sales
  • Strategy & Finance: Apple: What can we do with this mountain of cash?
  • Regulation: OFCOM: Yes, BT, you’ve got to pay the pensions. Yes, everyone else, so have you
  • Voice & Messaging 2.0: Skype is in your TV looking out
  • Broadband Connectivity: Indian 3G auction back on: tower deals surge

  • You really must show more application. According to a TNS poll, apps are now the joint second factor in subscribers’ choice of device - neck-and-neck with brand loyalty, behind look-and-feel. This rises to the first factor for the 16-30 age group.

    Unsurprisingly, the other kind of applications - the ones that happen when you aren’t looking - are also burgeoning. Here’s yet another warning about the threat from malware - especially from the possibilities of a fake femtocell.

    In a world where T-Mobile UK is advertising that you can get “a smartphone with apps” for £20 a month, it may become hard to keep track of some of this stuff. You may recall Palm having a major announcement not so long ago. Now, it’s turned rather sour, with sales of the WebOS devices disappointing - The Guardian’s blog decodes the all-hands internal e-mail from Jon Rubinstein, Palm Chairman and CEO. Meanwhile, Sprint and VZW subscribers got a software update that gives the devices video capture (like most Nokias had since whenever).

    In other device related news:

    - Anssi Vanjöki apologises for the N97 being less than fantastic
    - how Sony-Ericsson said no to producing the Google Nexus One
    - and a criticism of the new MS Windows Phone - it’s too phoney, and not enough of a computer.

    Things are, of course, different at Apple. The AGM is coming up, and key questions are likely to be “what’s the point of the iPad?” and “what are you planning to do with all that cash?”. There’s not that much else to ask, after Apple stretched out a lead of about $2bn in mobile net sales over Nokia’s “converged mobile devices” since autumn 2009. Sales through the iTunes Store aren’t bad either.

    Of course, if all that cash doesn’t tempt Apple to acquire something, and as DTAG and France Telecom have promised not to try anything silly in the line of mergers, it looks like it’s up to the rest of Silicon Valley to keep the M&A bankers, lawyers, etc going.

    Indeed, Google did their bit to keep the lawyers busy, as everything blew up when the Italian courts found most of the company guilty over a YouTube video. In fact, a YouTube video that had been taken down at the request of the police. Some context is here. It may be more serious that the European Commission wants to know if they’re fiddling competitors’ search results.

    In other online player news, here’s a Twitter monetisation effort; every Nth result in a search of Twitter could be an ad. But who searches Twitter feeds when they’re trying to buy something? And, with a limit of 140 characters, wouldn’t the ads-to-content ratio be a little high?

    What about mobile audio ads? It sounds like the worst idea ever, but that’s just the headline. The product seems to be essentially identical to Spotify - audio streaming over IP, with ads.

    There’s a lot of talk about making heavy users, or people who insist on using various classes of applications someone doesn’t like, or whatever, pay more. The BBC announced record iPlayer usage, as if to knock the point home, while O2 is going the other way and offering a smaller data bucket at lower prices.

    Neither, it seems, is trying to get the government to pick up an £8bn bill for pension liabilities. BT, we may recall, argued for a while that its own idiosyncratic understanding of the 1984 Telecommunications Act meant it could dump the bill on the UK Government. Nobody else did; least of all OFCOM, or its competitors, who blame BT for throwing the pensions money at the stock market. Unfortunately, it looks like the alternative solution is to hike the BT Wholesale and Openreach charges sharply.

    Not that the Web 2.0 types are any better - Facebook just tried to patent the RSS feed, a sort of second-rate, history repeating as farce rather than tragedy, version of BT’s attempt to patent the hyperlink.

    Meanwhile, another wave of menace heads for traditional telephony: TV sets that run Skype. One barrier to Skype has always been that it doesn’t really work on most mobiles, or on anything but a PC of some description, so if one party to a call wasn’t permanently near a computer, you had to make a PSTN call or send SMS messages to arrange for them to be near a computer. Basically, a little like setting up an international phone call used to be. But a lot of people have TV sets, and a lot more have mobiles. And Skype users can now use their credit to pay for WLAN hotspots.

    Clearwire announced subscriber numbers that appear to be improving though perhaps the most interesting question is how. Bill Morrow, the old Vodafone pioneer, said that they were expecting big things from “3rd party wholesale relationships”. This chimes with things Telco 2.0 heard at Mobile World Congress.

    There’s been another big sale of Indian cell-sites, and another date has been set for an Indian 3G auction.

    The FCC is after an additional 500MHz of spectrum for universal broadband which is meant to come from the TV world. They also issued a fascinating, dataful 168-slide presentation - we’ll be commenting as soon as we’ve digested it all.

    It looks like nobody wants to know about the Nortel name.

    And finally, via Brough Turner, the the sheer joy of that TV spectrum.

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    February 24, 2010

    Voice & Messaging 2.0: New API Use Cases

    We’ve just published our latest report on New Voice and Messaging 2.0: API Use Cases on our sister research site, which contains details of three new real-life ‘use cases’:

    * an in-store feedback service
    * a mobile and remote decision support application
    * a resource tracking opportunity

    These use the principles of ‘Communications-Enabled Business Processes’ (CEBP) to add value to enterprise customers by reducing costs, increasing revenue, and improving services. The latest applications use automated and user-activated processes to deliver voice, SMS and IM messages.

    The Maturity Path of Voice APIs

    We’ve long said that Enterprises represent the key value opportunity for telcos. We also argue that this should primarily be through API-enabled applications and developer communities as a route to market, rather than direct retail engagement, because of the complexity of the market, and flexibility / low cost approach to implementation required.

    From speaking to practicioners recently it looks as if this business model is increasingly taking root, and these New ‘Use Cases’ and others like them are needed to help both the developer and end-user enterprise communities grow the market. If you have examples you’d like to contribute, please comment on this article.

    You can also bone-up on other innovative ideas through our Voice and Messaging 2.0 Innovators Directory.

    (Ed: We’ll also be exploring how new voice and messaging API based applications can be applied across the enterprise value chain at our EMEA Brainstorm in London, April 28-29, 2010.)

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    February 22, 2010

    Telco 2.0 News Review

    Telco 2.0 Top Stories

    All the ‘sparkle’ at last week’s Mobile World Congress seemed to be about software and developers. While Nokia chose this year to keep off the conference site itself, Google showed up for the first time. Eric Schmidt made a show-stealing keynote speech which we reviewed here after the stardust had fallen from our eyes. Alternative views are here.

    In addition, anyone who had anything to do with Google Android had rockstar status, Google told the world that it was willing to invest in 1Gbit FTTH projects, and launched a virtual tour of the Trans-Siberian Railway. To which we can only quote the view of someone on Gordon Cook’s listserv, to the effect that telcos spend money on lobbyists and lawyers, but when Google feels the need for influence, it carries out a small but spectacular tech project and everyone loves it.

    Further, Telco 2.0 was able to speak to representatives of the LiMo Foundation at the conference.They argued that there was a major effort on to integrate the WAC, JIL, BONDI, and LiMo - so the carrier vision of the future is based on a common set of terms for app developers, an HTML/CSS/JavaScript widgetry layer next to native C development, and a common Linux distribution to drive it all. Samsung is also on board with the idea, only with a different name and a flock of very shiny gadgets. And Phillip Carter, Head of Integrated Terminal Products at Vodafone, is on the new LiMo board.

    Even AT&T is selling their gadgets. However, that didn’t mean that Google got what it wanted from Android; OHA vendors are very keen on the “free” element of Android, and they’re willing to pay for third party technologies to extend this into cheaper devices. Developing better sub-elements of Android is becoming a little industry in itself - at least in part to outflank Google’s IPR.

    The GSMA and 28 global operators announced the launch of the Wholesale Apps Community, which aims to standardise app stores and technologies around those already chosen by the JIL and BONDI. It’s worth noting that Vodafone seems to be a key actor in this effort. Also, everyone needs to watch out for RIM, who produced a fearsome showing of developers and third-party APIs - and a charming little robot. (Also, Mike Lazaridis seems to be worried about staff partying with models. We want to know what they were models of.)

    We’re especially concerned about RIM’s plans for a two-sided in-application advertising platform. Telco 2.0 analysis is here.

    Some Nokians were there in the guise of the open-source graphical user interface Qt, which has a book out.

    As far as voice went, Skype announced the first clients for Symbian devices, and Telco 2.0 turned its friends into guinea pigs in order to establish a median opinion score of sorts. Verizon Wireless announced a deal to deploy the VoIP application to its customers, and the GSMA said that IMS will fix the LTE voice problem. VZW promised to test it, and also promised that their 2G voice net would run on for 10 years at least.

    Rivals Fring, meanwhile, promised a wave of carrier deals, and also had a damn good party.

    The world has lost one mobile operating system. Intel and Nokia announced a deal to cooperate on mobile Linux, under which Moblin bites the dust and their technology is rolled into Maemo. The new new thing will be called “Meego”. In related news, a new version of Python for S60 is out, and it’s the first that lets Python devs release software through the Ovi Store. There’s also a library for augmented reality applications on Symbian.

    Nokia has also pulled a planned NFC device, a decision we’re totally on board with - we’ve never seen the purpose of these things, especially not for mobile money applications, as they suffer from a terrible first fax problem. We’re also amused by the people who plastered QR codes (those things that look like a cubist chessboard and work like a barcode with much more data) as URIs all over the conference site - let us see. It’s a URI that’s entirely unreadable by human eyes, but that most devices will load automatically, with their entire browser context? What could possibly go wrong?

    Comcast’s famous and controversial usages caps are apparently being deployed at last. Brough Turner cites data to suggest that the panic is not as close as previously thought - mobile data is going through a step-change like that experienced by Internet traffic in general in 1995-1996 or Japanese Internet traffic when cable, fibre, and ADSL rolled out. Learn more with our new broadband report.

    AT&T, it seems, is tracking VZW’s plans for LTE steadily.

    Cleanup efforts continued after Google Buzz committed a major privacy fail, while a US school district gave away laptops and monitored the kids’ homes by keeping the cameras on all the time.

    In remarkably mundane operator M&A news, Bharti Airtel wants to buy Zain. And finally, this year’s guest of honour, after Lara Dutta and Isabella Rosselini, was Queen Rania of Jordan. They kept her far from the likes of us, but fortunately we had Andrew Bud’s society.

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    February 19, 2010

    How Google’s Chief Magician Stole the Show

    Dr. Eric Schmidt, Google’s CEO, bedazzled the 2010 GSMA Mobile Word Congress in Barcelona. In his keynote address he told the industry exactly which parts of their lunch that Google will eat, simultaneously appeared to offer peace, showcased mesmerising new technologies, effortlessly took 45 minutes of questions from the floor, and then disappeared to widespread applause.


    Don’t get us wrong - we were impressed too. It was a great speech and a great show. Dr. Schmidt is a very, very capable and inspiring person, and there is no doubt that Google is brimming with ideas, vision, and ability to make things happen.

    We’ve recently published a Telco 2.0 perspective in our report ‘Google: where to cooperate? Where to compete?’ and are running a session specifically on ‘Living with Google’ at the April 2010 Telco 2.0 Brainstorm. In our view, some of the most important information was not just in what he said but what he said quietly or didn’t say at all.

    Like a great magician, Dr. Schmidt used the conjurer’s gentle art of misdirection coupled with a mastery of performance to pull off his notification of Google’s intended heist without appearing to alert or offend the hosts.

    First, make them laugh to relax them…

    Dr. Schmidt said he was ‘shocked’ to learn that the US might get LTE before or at least at the same time as Europe. The audience were amazed primarily by the sight of an American CEO appearing to grasp irony, and possibly also because none of them knew that anyone has signed up to a mass LTE deployment either.

    LTE was a great thing he said, just build it and the money will follow, but he didn’t say where from. Hang on, the still barely functioning conscious brain began to ask, wasn’t the last time we remember that being the business case for a new investment when the 3G spectrum came up for auction? In fairness though, this isn’t really Google’s business problem. His point was that Google love anything that makes the internet stronger (of which more below).

    … then charm them onto your side…

    Moving smoothly on, Dr. Schmidt’s big message was that Google is putting ‘mobile first’ in all development efforts from here on in. Sounds great, doesn’t it?

    But please note, he didn’t actually say that Google are putting mobile operators and vendors first, but rather that they are putting an increasing emphasis on what they consider to be ultimately the mass market form of consumption of the internet - the mobile phone. He said, as did we, that Google wants to put a bit of Google between the user and the internet in every possible transaction.

    Android, and Google’s accelerating investment in developers, symbolised by the production of a magical shower of free Nexus One phones at the show’s developer forum, are an important component of this part of the plan.

    Before the audience had time to recognise or reflect on the prospect of disintermediation from their customers, he swiftly produced a series of stunning visual magic tricks.

    …make them gasp with surprise…


    Various effortlessly shining Google acolytes joined the stage to produce apparently live demonstrations of Goggles image search, voice translation both to text and to other languages, and Optical Character Recognition (OCR) on a phone across the internet.

    Arthur C. Clarke said that ‘any sufficiently advanced technology is indistinguishable from magic’, and unlike the traditional ‘rabbits from the hat’ and ‘flowers from the sleeve’ tricks, these demos truly showed a little bit of magic in this sense.

    So befuddled were the audience that Mr Schmidt had to prompt them to go ‘wow’ at first, though luckily there was at least one American in the audience who started whooping, so it didn’t take long before the majority of the audience also fell under the spell.

    And to be frank, it was pretty impressive.

    Perhaps equally impressive as a lesson in business model innovation is the way Google has leveraged the assets of its web search processes and algorithms to the various searching, matching and translation tasks across voice, images and text.

    Google is also showing real vision in terms of how the cloud network really should work as a resource - a place to perform complicated computing tasks (such as accurate speech recognition) on a relatively small bit of data really quickly and return a useful individual answer to the end-user.

    …pick their pocket while they are distracted…

    Dr. Schmidt has been rightly praised for taking 45 minutes worth of questions, even if some were of the simpering ‘Google rocks!’ and ‘can I have a job please’ variety. He dealt with a variety of challenges cleverly, never once retreating from his relaxed ‘I have nothing to hide but my brilliance’ stance beside the podium.

    One infamous industry commentator tried to bluster through a ‘you just want us to be dumb pipes’ question. Like Zorro responding to the suicidal challenge from the latest brave but doomed local guard, Dr. Schmidt first confused his opponent by asking ‘is that a question or an assertion?’ The audience immediately on his side, he then mocked his opponent ‘I like assertions, shall we deal with that first?’ Then he appeared to deal with the question ‘no, I don’t think that at all’ and finally seemed to show pity for his downed opponent ‘it was not me that asked them to take the microphone away from you’.

    More sophisticated challenges produced slightly more nuanced answers. He said that Google wanted telcos to deliver networks with the service quality and security needed to produce a great end-user experience (of Google). This is presumably his interpretation of the ‘happy pipe’ scenario for telcos.

    On the issue of ‘net neutrality’ he sounded conciliatory saying that operators have every right to distinguish amongst categories of content (video from browsing etc.), and that Google supported that right so long as there was no discrimination between providers within any given category. This was greeted by many nods of approval from the audience, but what he didn’t say was that he means that non discrimination within categories should apply to operator-run services too, and that’s where Google comes head-to-head with operators on net neutrality.

    On voice, he rebuffed suggestions that Google were ‘stealing telco’s minutes’ through Google Voice. He asserted that equally, text messages stole telcos minutes, though omitted to recognise that text messages were at least in some cases revenue creating services provided by Telcos as opposed to a free service provided by Google.

    …Customer Data: now you see it…

    Perhaps most significantly, in a brief and almost off-hand comment, he said in five years Google and the telcos would both still be in the market ‘together’, but customers would have given Google more of their data. No pretence, no fuss, no fireworks - this was masterful sleight of hand, quietly telling the audience what would disappear before the show is over without them realising that this is the big trick, so that at the end they would say ‘oh my goodness, he even told us what he was going to do and we still didn’t work it out!’.


    Source: The Telco 2.0 ‘Two-Sided’ Telecoms Market Opportunity Report

    That he remained unchallenged on this point seems proof yet again that many in telcoland just don’t seem to understand the value of the asset they hold in their customer data (see here and here). This is what Google will gradually build up and use to its own ends, just like it did with location data - that originally unique asset of the mobile industry.

    Perhaps this anticipation of value is also the great art and secret of Google’s magic - they simply get there first. Before another industry even sniffs the value in a given area, before the newspapers are writing about the ‘next big thing’, like the great investors they’ve already hoovered up the assets for a snip. The logic is simple: it is possible to take a leading position in advance of the market, but much harder to when the whole market is after a given space.

    This is the real challenge for the operators now - have they recognised the opportunity, and are they really doing enough to play for it? Google have recognised it, have told everyone about it, and will move forward rapidly.

    …flatter them to keep them happy…

    Effusing distracting and temporarily disarming modesty, Dr. Schmidt was at pains to say that Google is not perfect, and not strong as mobile operators in some key areas - a theme we’ve explored before, e.g. in Google Vs Telcos: The Tale of The Tape.

    Neither does Google have unlimited resources, capabilities, or commercial ambitions. Dr. Schmidt said Google has no desire to compete in billing and payments, in which he said Telcos were ‘far and away the most efficient processors’. He didn’t mention that Google have just recruited eBay’s US GM to be their VP Commerce, so perhaps we should add ‘for now’ at least, and not mention the financial services companies.

    He also said that Google has no ambitions in fibre to the home where their activities are intended as a test to prove the concept that data rates over 100Mb/s are possible.

    When questioned on growth ambitions, he said that it is simply a CEO’s prerogative to always want more revenue, and that advertising is (for now at least) the biggest single pie that Google want a piece of. He said of the c.$1 trillion advertising market, less than 10% was online, and Google’s priority is to accelerate the transition from offline to online and capture as big a piece of it as possible, particularly in mobile. Again, much as we said in our Google report.

    … and leave them hungry for more

    Dr. Schmidt’s appearance and performance at the 2010 GSMA Mobile World Congress marks an inflexion point in the telecoms industry. It was significant just that he was there, and there was much in the content and the style of the presentation that signals some of the possible future paths that the industry may take.

    Intelligent, visionary, and unapologetic that Google will pursue its own agenda, for those with any remaining doubt Dr. Schmidt announced that Google is in mobile seriously and to stay. He didn’t say ‘I don’t care what you think, we are going to win all the bits we want’ but he might as well have done.

    And why not? Google isn’t perfect or saintly, but it earns its place and its money by winning customer trust and usage by being a little bit magical - and to date at least by being smarter and better than everything else around it. Google does not owe the Telcos a living, though it would like them to provide it with useful services.

    The important question is: what will the telecoms industry do about it? Will it continue to appear beguiled and flattered, rolling over to be tickled like the enchanted Congress audience? Will it get insular and defensive and threaten regulation as Vittorio Colao, Vodafone CEO appeared to suggest in his keynote? Or will it get on and take the opportunities that it has within its own grasp - including the opportunities to both work with and compete against the big innovators like Google?

    No doubt a bit of ‘all of the above’ will apply. In our view though, it is critical for the telecoms industry to recognise the fundamental reshaping of the commercial and technical infrastructure that is happening right now, collaborate on initiatives to create the business models required in the new information economy, and continue to compete like hell on the existing business.


    So overall then it was an honest and skilful performance by Google’s Chief Magician, even if some of the most important pieces of information were in what was quietly spoken or not said at all. It could only have been improved if the intelligence of the presentation were matched by the skill of the facilitation and interaction with the other brains in the building. To this end we’d love Dr. Schmidt to join us at the ‘Living with Google’ session at the April 2010 Telco 2.0 Brainstorm where we will offer just that.

    (Image Source of Dr. Schmidt: EON News)

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    February 17, 2010

    MWC Watch: Developers, Developers, Developers

    Telco 2.0 is, of course, at Mobile World Congress this week. Something that’s very obvious this year is the come-back of the North American industry, and specifically anything that involves Android or developers. All the device vendors who ship substantial volumes of Android devices are heavily present. Samsung is practically rolling in Androids. Despite the announcement of the new version of Microsoft Windows Mobile, HTC is big on Android as well. Android software developers are everywhere.

    However, an interesting phenomenon is making itself felt. Rather than - or as well as - being a top-end product for the latest smartphones and early adopters, Android has been heavily adopted by vendors looking for an economical platform to get into the smartphone market. This places some strains on the technology itself and may have significant long-term consequences for the Android ecosystem.

    It’s something of a tradition for Google to throw hardware at its problems; we live in an era where hardware is cheap in terms of engineering man-hours, and Google has relied for years on huge numbers of PC servers crafted to its specifications. It came as a shock to the industry when we learned that there were 100,000 Google servers back in 2004 - how many must there be now? The limiting factor for this approach turned out to be power and its twin, cooling. Google has since invested heavily in improving the power performance of its hardware and its buildings.

    As a result, it is perhaps not very surprising that Android has a reputation for being a resource hog. Specifically, the heart of Android, Google’s home-grown Java virtual machine Dalvik, is significantly more processor intensive for comparable performance than the Sun-made original, or code running in native C. If the device in question uses Qualcomm’s Snapdragon 1GHz chip, this won’t be a problem. If it’s a much cheaper ARM9, it can be a significant constraint on the user experience and what exactly will work. Now, if Android was only being used for the top-of-the-range, this wouldn’t be a problem. But vendors are keen to broaden the smartphone sector and make use of what is the cheapest mobile operating system going.

    Dalvik is one of the keys to the whole Android project; as well as wanting to avoid relying on Sun Microsystems or paying them royalties, Google created it in order to give the Android phones a primary development environment based on Java and arguably also in order to have a control point in the intellectual property rights. Whereas much of Android is pure GPL code - like the Linux kernel, the core libraries, the WebKit browser, the user interface, the Python virtual machine - Dalvik pointedly isn’t.

    This is why the appearance of alternative Dalviks is interesting. Myriad, for example, offers its own version of Dalvik, which it has subjected to extensive code refactoring. They claim that it performs dramatically better on the Android common benchmarks and on some standard IT measures (Grinder, quicksort); Telco 2.0 saw a jBenchmark test carried out. The performance boost seems to be concentrated in graphics rendering and in loop constructs - as the latter are very common in procedural code and most code is procedural, this is significant. They claim it is interface-identical with the original and that it passes the Android unit tests.

    So it’s possible to squeeze Android further down the range of devices - and to remove an intellectual property dependency on Google. This, of course, puts greater importance on the Google account, its related G-services, and Google Ads to deliver value for Google from Android.

    RIM actually has an android

    Google has Android. RIM actually had an android on one of their two stands - skittering about among the legs, under the control of a developer skulking in the crowd with a BlackBerry. It would be churlish to complain that controlling a basic robot with Bluetooth is one of the examples in Scheibe and Tuulos’ s Mobile Python; everyone we mentioned it too instantly went all shiny. “Robot!” Like some people do around cats. Developers are like that.

    Showing off your developers is a big theme this year - the GSMA started the show with their announcement that 24 more carriers have, in essence, joined the JIL operators in standardising their app stores and widget APIs. The big question is whether the Wholesale Apps Community/JIL/BONDI strategy - HTML/Javascript widgets and operator app stores - is going to get traction or whether the vendors will clean up before it takes off.

    Take RIM. RIM has practically nothing else in the show but dozens and dozens of start-ups with their applications, spread across two enormous stands and a developer day. The immediate reaction from a Telco 2.0 perspective is that so many are rather sensible and enterprise-related - field-service ticketing systems and BlackBerry clients for industrial SCADA. Not the sort of thing that gets you on the front page of Reddit and Slashdot, or on the keynote at MacWorld, but certainly the sort of thing that makes real money.

    Speaking of making money with RIM and developers, we also took in one of RIM’s developer sessions about their new advertising and payments services, now in closed beta. These make it possible to embed rich, targeted adverts in an application’s user interface context, to manage them through a central Web interface, and to link the adverts with a programmatic callback. Rather than just going to another advert on a Web site, the advert’s call-to-action can be a literal callback that initiates a voice call, places a contact in the user’s address book, places an event in their calendar, or sends the user to BlackBerry App World to make the sale. RIM is acting as an aggregator, acquiring ad inventory from multiple ad networks and placing it with developers; out of the advertising revenue, RIM intends to take a small revenue share - covering costs only - and to pass some of the rest to the ad networks, with the balance going to the application owner.

    Yes; it’s a two-sided advertising market, intended to sell devices through helping application developers monetise, and it’s all the work of a device vendor. Not good for carriers, although they will be pleased that the related payments SDK will provide carrier billing as an option next to PayPal and credit cards.

    [Ed. - we’ll be exploring these issues in more depth at the 9th Telco 2.0 Exec Braintorm on 28-29 April, London].

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    February 12, 2010

    Security Breach at M-PESA: Telco 2.0 Crash Investigation

    Fraudsters have relieved a Safaricom M-PESA agent of 35,000 Kenyan shillings. This may not sound like a lot (about €340), in a business where figures in the tens of billions are routine, but it’s a business-killing loss for a Kenyan reseller agent. In fact, it’s equivalent to 26.8% of per capita GDP. With a savings ratio of 17%, it would take a typical Kenyan a little over 18 months to replace the capital loss. (Actually it’s worse - there’s no reason to think the savings ratio is evenly distributed. Usually, the rich save more, because they have money to spare.)

    And if your business depends on thousands of reseller agents, anything that can wipe out their capital in 20 minutes is a serious threat. Therefore, security is a major challenge in delivering the promise of mobile money.

    Seems fairly clear - but how many users have iPhones?

    How it’s meant to work

    The cash-out process in M-PESA (in Kenya - some other deployments are different) works as follows; the customer approaches an agent and asks for cash. Then, the customer opens the M-PESA application on their device and initiates the USSD session with the network. The application running on the phone authenticates the customer’s PIN and authenticates the device with the back-end. The OSS back-end processes the transaction. The agent’s device initiates a session with the back-end and receives a message including a transaction authorisation code and the agent’s current M-PESA balance.

    This should rule out a number of attacks - as the devices involved are independently authenticated with the network, this should prevent one device pretending to be another to get access to someone else’s account, and as the user and agent are authenticated with the devices, this should prevent someone pretending to be another user. Further, as the transaction process flow goes via the operator, you shouldn’t be able to pose as an agent and accept deposits, or pose as a user and draw cash.

    However, the security of the process depends critically on the agent being certain that the authorisation message comes from Safaricom. If an attacker could somehow deliver them a spoof authorisation message, they might be able to carry out a fraudulent withdrawal. Similarly, if an evil agent could somehow deliver a spoof authorisation message, they might be able to accept deposits fraudulently. A crucial element, therefore, is the distinction between the M-PESA application’s user-interface context and that of the device’s own messaging function.

    Case History

    At about 2 pm local time, on February 1st, 2010, two persons approached a reseller agent on the fringes of the city of Nairobi, about 24 kilometres from the city centre. They claimed to be Safaricom employees conducting an audit of the reseller and presented what seemed to be M-PESA publicity material and Safaricom identity documents. Such audits are carried out on a regular basis. They asked to see accounts, and left. It is not clear if they interfered with the device physically.

    Some 20 minutes later, another man approached the agent and requested 35,000KSh in cash. He appeared to start the M-PESA transaction on a mobile device. Shortly afterwards, the agent received a message purporting to be an M-PESA transaction authorisation, which contained their current credit balance. They verified the man’s name on his national identity card, and paid out 30,000KSh. Before the agent could hand over the rest, he signed the transaction slip and said he would return for the remaining 5,000. He left.

    Some time later, another customer arrived. A valid M-PESA transaction was carried out, and the agent noted that the withdrawal of 35,000Ksh had not been recorded. They called 234 - the M-PESA agent support line - and reported a suspicious transaction. The call centre confirmed that no transaction had been recorded.


    Previous frauds have occurred in which the fraudsters gained physical access to the agent’s mobile device, and inserted a contact with the name “M-PESA” and a GSM number under their control into the address book. Therefore, a message or call from that number would appear as “M-PESA”, although it would not appear in the user interface context of the M-PESA application. This permitted, up to a point, a spoofing attack. Of course, the necessity of physical access to the device - a so-called Evil Maid attack - restricts the possible scope of the threat.

    In this case, it is reported that there may have been no such physical security breach. If this is the case, this renders the attack considerably more dangerous, as many agents could be simultaneously compromised at a distance. The most likely vector for such an attack would be that an “M-PESA” contact was inserted into the device address book remotely, as a vCard payload in an SMS message (most devices, including all Nokias, will open them automatically, although the Nokias at least will show a dialog asking the user if they want to add the contact to the address book). A large scale attack could use a GSM device or modem controlled by a PC, or more complicatedly, a software client sending SMS messages encapsulated in SIP. A really basic option would be to simply keep texting.

    However, the attack fails if the M-PESA user interface is easily distinguishable from a normal SMS event, and it is actually distinguished by the user (not the same thing). Similarly, it fails if the message itself can be verified as being genuine or not. Various approaches are possible, but essentially all of them rely on a shared secret between M-PESA and the authenticating party. In this case, it seems that the authenticating party’s balance is used as such a shared secret - the authorisation message should contain the correct balance after the transaction, which serves both to help the agent monitor their finances and to verify the transaction’s genuineness.

    This explains the role of the fake Safaricom employees. Without the need for physical access to the phone, you might wonder why they were needed, except perhaps as psychological reassurance or misdirection. In fact, it seems that they probably served to discover the shared secret and therefore to get the information required to create a convincing forged authorisation. As they asked to examine the agent’s accounts, they presumably simply read off or calculated the current balance. (Perhaps they also sent the spoof contact to the device at the same time - under the guise of an “update” or a “test”?)

    It’s also worth noting that the attackers ingeniously made use of M-PESA’s own security system - namely, auditing - to get the information they needed and to gain the target’s trust.

    The evil client, it can safely be assumed, didn’t start an M-PESA transaction and instead sent his accomplices an SMS message telling them to send the forged authorisation.

    Critical Points of Failure

    The critical point of failure is undoubtedly in the user interface. The technical architecture of M-PESA provides a secure channel for transaction authentication and authorisation from device to device, using encryption, the SIM, and USSD. Attackers therefore targeted the section of the communication channel that runs from the device screen to the user’s eye. The UI may need to be redesigned to make the distinction between the M-PESA user context and the phone’s normal context more obvious, if at all possible implementing a poka-yoke function to force the correct process path.

    For example, inbound SMS could be suppressed while the application is active - SMS is a store-and-forward technology and therefore no messages would be lost - or the notification of incoming messages could be turned off temporarily. This would require the authenticating party to start the application at the beginning of the transaction, which would itself require thought as to how to make this unavoidable. However, there are barriers to this example - a major criterion of acceptance by the Symbian test houses is that your application must not interfere with voice or messaging functionality. Another design issue is that users are likely to be unfamiliar with computers and at least some possibly illiterate.

    Of course, the pretty UI in the screenshot above is all well and good, but not many Kenyans have iPhones.

    A secondary point of failure is the use of the balance as an authentication secret. Is it sufficiently secret? Further, it may not be optimal to use a number that the agent has to record in writing as a shared secret. On the other hand, it’s necessary for the agent to remember the secret, and the balance is obviously a number they are likely to know. Further, there is a useful feature here in that using the balance provides an automatic red flag - if it isn’t what you expected, something is suspicious. On balance, this shouldn’t be a problem if the user interface is fixed.

    Impact and risks

    A serious problem that this attack exposes is that the agents - critical to the entire system - bear a disproportionate fraud risk. Essentially, they’re out of pocket. This has a number of downsides - for a start, the system depends on their confidence and on users’ confidence in agents. If existing and prospective agents fear their capital might be wiped out, it will be harder to recruit and retain agents, especially as raising the capital to become an agent is a nontrivial challenge in itself.

    Further, the agents’ coping strategies against fraud risk are likely to harm M-PESA. The obvious countermeasure is to minimise the credit balance you hold with M-PESA and the cash float you keep on hand. This diminishes the liquidity and value of the entire system, the potential for collateral sales of airtime, and its value to the banking partner as a source of deposits. There is a worse one - if you have no protection against fraud risk, you also have an incentive to cooperate with the fraudster.

    A limiting factor to the risks is that this attack is still only partly capable of being industrialised. It’s possible to push spoof contacts out in large numbers, but discovering the credit balances of agents requires either a class break of M-PESA’s Web or core-network security precautions, or else a fairly laborious social-engineering attack like this one. It’s possible, however, that such a social-engineering attack might be carried out at a distance by voice or SMS, which would indeed be a major threat.

    Conclusions and recommendations for action

    M-PESA security is critically dependent on the device graphical user interface and process flow to prevent attackers spoofing transaction authorisations. A successful attack using spoofing and social engineering has been demonstrated which requires physical access to the target device. An attack which does not, and which is capable of at least some scaling-up, may have been demonstrated. Such an attack is certainly technically possible. Attention to the user experience is required to defeat spoofing.

    However, second-line security measures constrain the attacker to use an expensive and risky social engineering exploit that requires their physical presence. Further, the attacker demonstrated that it was possible to defeat Safaricom’s physical security by faking or acquiring stolen ID cards, uniforms, and publications.

    Further, the management of fraud risk against agents requires attention to prevent it becoming a major threat to user and agent confidence in what is, after all, a quasi-bank. A refund process for end-users does exist, as discussed in this excellent blog post.

    In general, MMT operators should be aware that it is certain they will encounter mischief and unauthorised innovation of some sort. It may be difficult to distinguish between user innovation and actual abuse - for example, how do we classify the Ugandans who are providing an unofficial M-PESA service where the real thing doesn’t exist yet?

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    Blurred Vision…

    Informa Telecoms & Media has a series of pre-Mobile World Congress (MWC) interviews up with a roundup of industry luminaries including Virgin Mobile founder Tom Alexander, O2 vice president Mike Short, Bell Labs UK director Louis Samuel, Ericsson CTO for Northwest Europe John Cunliffe, and T-Mobile UK head of technology strategy Tony Weiner, on the theme of “2020 Vision” (heh). The (rather weak) editorial is here.

    We won’t dwell on the fact that one of the panel predicted that the hit technologies of the future would be 3G video calls and NFC (!), and instead cut to this:

    By way of illustration, Bengt Nordstrom [one of the interviewees] takes a punt on the 2020 Mobile World Congress awards. The event, he suggests, will be happening in Beijing. “‘Facebook Free Talk & Chat’, already the world’s most popular voice and messaging service, also wins a GSMA award,” he predicts (although it will be surprising if the GSMA hasn’t had a rebrand of its own by this stage).

    We’d instead go for the following winners at MWC 2020:

    Network Operator

    And the winner is….IBM Global Services’ Multitenant Service Provider Network Outsourcing division. I thank you! An honourable mention goes to BT Openreach.

    Why? If you think there’s pressure on margins and capacity now, think what it’ll be like in 2020. If you think investors are getting snippy about CAPEX now, and pressing you to sign network-sharing agreements, think what it’ll be like in 2020. The core-network equivalent of sharing towers, ducts, dark fibre, power, etc, is to move your core network into a massive multi-tenant hosting infrastructure - exactly the sort of thing that IBM, BT Global Services, Amazon, Salesforce, Akamai, Google, the Internet Archive, etc, have built up a core speciality in.

    Also, the value of the core network itself is changing. According to Brough Turner, between 96% and 99% of the data traffic on North American mobile networks is heading straight out to the Internet - so if it touches the core network at all, it’s got no business being there. Not only will more and more voice and messaging bypass it in future, the price of voice and messaging is in any case marching steadily downwards, and the value of the softswitch must go with it.

    Managing really big high-availability data centres and cloud technology is their speciality, just as reliability used to be AT&T Long Lines’ profession. If there’s no point having four sets of ducts and cell sites, there’s not much point having four sets of data centres and four sets of redundant backups.

    Best device

    No doubt there’ll be a sexy and overrated Apple product launch at that year’s Macworld a couple of weeks earlier, but our pick is the QQ-Skype phone, courtesy of QQ, Skype, and Zhang’s Shanzhai & Chips Ltd. It’s running Linux, of course, and supports OpenARML-over-XMPP for its augmented reality functions. There is a scramble to get IPv6 deployed in mobile networks after it is realised that its voice capability depends on them all having their own globally routable IPv6 addresses.


    We’ve given our reasons for being keen on QQ before; and despite the general loss of buzz about Skype since about 2006, it’s still steadily eating into the international voice market. However, as it’s probably unwise to have voice and video traffic do multiple hops over the cellular air interface, the client is probably very much Skype in name only. But perhaps the call control will be in the cloud - Skype’s cloud of clients running on millions of fixed machines.

    AR is currently waiting only for a widely deployed client and a standard protocol to explode - OpenARML does, in fact, exist, but the clients currently talk proprietary protocols.

    And the Shanzhai stuff? Whether it’s actually from that community or not, we suspect that the outcome of the great smartphone smashup is going to be very PC-like - a broadly standard architecture that can accept many different vendors’ components and many different form factors. The shanzhai devices are currently the closest to that we’ve got; although there will be some very un-shanzhai materials science stuff in the devices of 2020…not just in screens and batteries, but in things like nanomechanical radio.


    Astringent Systems’ 59867 Optical Wavelength Router was the undisputed hit of the conference. Kite wind turbines were selling well on the Avenida. Unfortunately, there’s no stand for “really huge numbers of bog-standard PC servers”.


    Down in the packet-pushing world, even now, a lot of people are beginning to find IP and MPLS rather constraining for high-performance applications. National Research and Education Networks (NRENs), as usual, are going first, building backbone networks that consist entirely of private wavelengths directly on the fibre. As we move from virtualising software across racks of servers, to virtualising it across whole data centres, to virtualising it across whole globally-distributed data centre infrastructures, it’s increasingly useful to be able to treat the whole system as a single network fabric.

    A key barrier to utilising direct lightwave communications is that unless you have diverse fibre routes to all your DCs, you’re essentially back in the pre-internetworking world where all your routes are predetermined. The major technical challenge is to switch lightwaves with the same kind of flexibility we have with IP packets - some equipment can now do this, but it has to take the packets through an electronic stage. Just as really high performance IP routers are defined by how much traffic they can route in hardware TCAMs rather than using the CPU and software routines, really high performance optical networking will need to do as much as possible in light rather than having to hit the grey silicon (as opposed to the glassy kind).

    Of course, by 2020, power will be everyone’s number one issue, whether the climate forces it on us or supply constraints save us from the climate. Available wind power, and the percentage of the time it’s available, goes up exponentially with tower height; the well-dressed emerging market base station will probably wear a kite-turbine, and your recovery crews (probably working harder than ever before - the future’s going to get weird) will have them as part of their standard load-out. Don’t think we’re joking- the renewables industry has a surprising number of aerial turbine startups.

    All those data centres, of course, will be full of cheap PC-based linux boxes - that’s how Google does it now, and we can’t expect telcos to catch on in a mere decade.

    We reckon, however, that the conference will still be in Barcelona. Nice place, and not too many Mass Group Incidents.

    [If you’d like to meet a Telco 2.0 analyst at MWC next week, just contact us]

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    February 11, 2010

    Apple iPad - Business Model Analysis

    We’ve just published our analysis of the business model impact of the Apple iPad. See here for a free preview at the Telco 2.0 Subscription Service portal.


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    Introducing Telco 2.0 ‘Best Practice Live!’

    We are delighted to give our readers a preview here of Telco 2.0 Best Practice Live!

    This is a new service from the Telco 2.0 Initiative (and partners), created in response to requests from our community. Telco 2.0 ‘Best Practice Live!’ provides what will be the first carefully curated, online, video-based, interactive knowledge bank of cutting-edge ‘Telco 2.0’ services, business models and solutions from around the world.

    It opens on 28-30 June 2010 with live online broadcasts of case studies to three geographic regions, each incorporating interactive discussions and panels, and supported by a major online exhibition. All materials are available afterwards ‘on-demand’ and then updated every six months via a new live broadcast and exhibition.

    Below are details of the objectives, rationale, participants and agenda. If you would like more details of how to get involved, please email us. A website will be available next week too.

    Event Objective
    To identify and showcase best practice and next practice case studies from around the world which demonstrate the value of developing Telco 2.0 businesses. The case studies will come from both developed and emerging markets, be replicable and identify practical steps for moving towards Telco 2.0. The exhibition will complement this with a showcase of the technologies and solutions that underpin the development of the 2-sided business models that sit at the heart of the Telco 2.0 concept.

    Why We’ve Created Telco 2.0 Best Practice Live!
    Telcos around the world are embracing Telco 2.0 and the 2-sided business model concepts. As a result there is an ever-growing pool of inspiring and very real examples of telco 2.0 services or how to move towards them. The problem is that while these exist, they are not seen or understood by the broader telco industry. We have therefore designed this virtual environment to bring the very best examples to the attention of a global audience in a single place, accessible by all.

    In June we will be looking at:

    *Keynote Sessions: These concentrate on four areas that are central to the development of Telco 2.0 business models. Each session lasts for an hour and includes case study presentations and interactive Q&A sessions with the presenters. Each will also be accompanied by a moderated chat session.
    The case study presentation will follow a template designed by us to demonstrate the Telco 2.0 principles used, the value these create, the level of control the telco has over the business model and therefore the sustainability of that model.

    The keynote sessions will cover: Corporate Growth Strategies; Machine-2-Machine; Consumer Data and Behavioural Advertising; Mobile Broadband cost structures.

    *Streamed Sessions: Each session focuses on an area of telecoms industry development that is both hot and has potential for growth. Again, each session lasts for an hour and includes case study presentations and will be accompanied by a moderated chat session with the speakers.
    The topics covered are: Entertainment and Content Distribution; Mobile Money; Mobile Marketing; AppStores and Developer Communities; Cloud Computing; Carrier Services; Devices; IT/OSS/BSS; Network Technology.

    We expect up to 4000 people to participate (2000 in June and another 2000 following): senior executives and decision makers from telcos, media and technology companies who are involved in strategy, new business development and product development and procurement. CTOs and technical teams involved in the development of the structures and solutions that support two-sided business models. Plus those involved in strategy, operations, new business and IT from ‘upstream’ industries in Advertising and Media, Entertainment and Broadcasting, Financial Services, Applications and Software Development and Enterprise Solution Providers, along with M2M sectors such as automotive, logistics, health and energy.

    What Differentiates Telco 2.0 Best Practice Live! from Webinars and Webcasts?
    In short - video and interactivity. It is a complete virtual event that includes everything you would get a physical one and more. It combines the latest technology in webcasting, online chats and video streaming, to offer the elements of trade shows: exhibitor booths, speeches, seminars, distribution of marketing literature and social gatherings. It combines the video interface of a webcast with greater interactivity and social engagement tools. Business collaboration, the exchange of opinions and information is not just supported but actively encouraged and it all takes place in real time. Live group, moderated and one-to-one chats are supported as well as forums, blogs and even Twitter for the Tweeters amongst the visitors.


    Event Structure
    The event combines a fully interactive virtual exhibition with a video-based, interactive conference. The conference is split into two parts - plenary or keynote sessions for the first half and streamed sessions for the second.

    Keynote Sessions
    Session 1: Corporate Strategies

    This session will feature presentations from telcos that have already developed a cohesive strategy that encompasses multiple examples of telco 2.0 and telco 2.0-like services and business models including carrier services, machine-2-machine and monetisation of telco assets to third parties.

    Session 2: Machine-2-Machine
    Featuring best practice and next practice examples of Machine-2-Machine deployments that are streamlining enterprise business processes and building new comms-enabled functionality on top of these. These could include but are not limited to:
     Smart Grids - meter reading, facilities management and energy conservation
     E-Health 2.0 - examples could include a wellness monitoring, asset tracking, appointment setting, etc
     Telematics and logistics 2.0 - including deliveries, field service, asset tracking
     Automotive - maintenance, repair, insurance

    Session 3: Consumer Data and Behavioural Advertising
    Advertising revenue is an important source of revenue for Telco 2.0-type business models and this session will feature new examples of how telcos are looking to expose and monetise their assets to advertisers and focus on their role as the custodians of consumer data. These could include but are not limited to:
     Personalisation
     Identity Management/Multiple IDs
     Creating valuable aggregated data for marketing purposes
     Consumer data protection and security

    Session 4: Mobile Broadband
    This session will focus on the best and next practices for deploying mobile broadband based on their ability to support both the data traffic and business models associated with Telco 2.0. These could include but are not limited to:
     Using broadband as a market entry/re-launch mechanism - developed and developing markets
     Creating broadband services beyond consumer buckets
     New business models for Internet access only e.g pre-paid access with dongles, Wifi-like pay as you go access
     The economics of traffic management and offload strategies including femtocells, backhaul and DPI, QoS as a service.

    Streamed Sessions
    Each session focuses on an area of telecoms industry development that is both hot and has potential for growth. Again, each session lasts for an hour and includes case study presentations and will be accompanied by a moderated chat session with the speakers.

    Entertainment and Content Distribution
    This session will concentrate on the areas in which the telco, media and entertainment worlds are converging and could include but is not limited to:
     Hybrid broadcast/IPTV
     Building telco onto gaming
     Integrated home hubs for telephony, broadband, IPTV/Pay TV, gaming
     Time and place shifting
     Social Networking
     Recommendation and retail

    Mobile Money
    This session will cover the fast-growing mobile money sector and will concentrate on the role of operators as value-added facilitators of money services not just a distribution network. It could include but is not limited to:
     Money Transfer - building services on top of P2P transfer - bill payments, wages,
     Mobile Payments for physical goods in real and virtual environments
     Mobile payments for virtual goods - in game, social networking etc

    Mobile Marketing
    This session will focus on the services telcos can offer to media and advertising companies beyond access to their customer base. It could include but is not limited to:
     Media exchange amongst operators
     Ad booking
     Campaign management
     Measurement and metrics

    Developer Communities
    One of the hottest topics in telecoms, the developers, developers, developers mantra has hit the mobile telecoms world with a band. This session will examine the value created by different developer-engagement strategies. It could include but is not limited to:
     App Store Partnerships
     Device and platform partnerships
     Telco created communities or app stores
     API exposure and monetisation

    Carrier Services
    Carrier service divisions are almost entirely based on the interconnection or exposure of a telco’s assets to a third party. Up until now this has been almost exclusively telco services to other telcos. However, there is the opportunity to build on these businesses, selling telco services to other businesses and other services to telcos. It could include but is not limited to:
     IP Exchange
     Content delivery platforms
     Hub services
     Financial service interconnect and clearing
     Managed service mobile backhaul - carrier ethernet etc

    Cloud Computing
    Another of the industry buzz terms, almost every application imaginable it is claimed can be put in the cloud. This session will look at the business models associated with telcos playing in the cloud. It could include but is not limited to:
     Public, private or hybrid clouds
     Cloud services for SMEs
     Mobile Cloud Computing
     VAS to Cloud service providers - QoS, security, SLAs

    Mobile Devices
    The once ubiquitous definition of a mobile communications device is changing beyond recognition. In addition to communication device developments such as smartphones and dongles, there is an emerging genre of devices developing around app-specific services. This session will concentrate on the new business models that are developing around devices. It could include but is not limited to:
     Dongles and pre-loaded data
     E-readers
     Smartphones
     Embedded consumer electronics for M2P or P2M applications

    Business and Operational Support Systems
    Often overlooked because it is both complicated and far less ‘sexy’ than many of the other business areas, BSS/OSS does, however, lie at the heart of Telco 2.0. It is where the majority of the assets that could be monetised sit and are enabled from. . It could include but is not limited to:
     Billing
     CRM
     APIs
     Network Management
     Traffic Management

    Network Technology (other than Mobile Broadband)
    Network technology has always been central to the development of the telecoms industry and while it is no longer the total solution, technology remains a key growth enabler. This session will concentrate on the business models developing around different technologies and could include but is not limited to:
     FTTx
     Carrier Ethernet
     National Broadband Networks
     Optical technologies - RODMS

    In the exhibition halls, as attendees you can browse through virtual booths just as you would at a physical conference. And, just like a physical event, you can chat directly with booth reps and other visitors but in addition, you can download content directly to your own Virtual Event Bag. On exiting the event, all contents of the bag are automatically zipped and downloaded to the your desktop.

    If you would like to learn more, please email us.

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    February 10, 2010

    Mobile Money 2.0: strategic lessons from top case studies

    Cutting through the hype, two presentations at the 8th Telco 2.0 Brainstorm held in Orlando gave real examples of how telcos are making money today from mobile money services by utilising and building on their existing assets.

    Keith McMahon, senior analyst with the Telco 2.0 Initiative dispelled some of the myths surrounding mobile money services, saying it was neither technology nor demographic choices that dictate the success or otherwise of mobile money services. From our work developing the Mobile Money Use Case Research Keith cited two very different examples - Safaricom’s M-Pesa service in Kenya and NTT Docomo’s Felica mobile wallet service in Japan. He explained that the common success factors were in fact based on scale and control of the platform.

    Profits Possible
    The mobile money solutions offered by Safaricom and NTT Docomo have one very important thing in common - they are both profitable. Safaricom has 8 million M-Pesa users, accounting for 50% of its customer base and is operating on margins around 20%; Docomo has 10 million users, around 20% of its total customer base and a decent sized credit card-like business in any market.

    It is the scale that makes their mobile money businesses attractive and that scale is based on two factors.

    Scale, scale and scale
    Firstly, both are leaders in terms of subscribers in their own sizeable markets. As McMahon observed, their high market share enables their standalone leadership positions. The jury remains out as to whether an operator without such dominance can establish profitable services. The alternative for operators in less powerful positions is to consider collaboration but that takes away the massive churn reduction benefits of the service that were a major influencing factor for Vodafone’s board in deciding to develop the system for Safaricom.

    Secondly, both have managed to build scale in their distribution or merchant networks. While Safaricom did this by utilising its existing pre-pay merchant network, Docomo went on a spending spree buying shares in a major card issuer and merchant acquirer and in merchants themselves. Without such investments, Docomo would have struggled to convince merchants to support the NFC PoS capability essential for the service and it would not have gained the required scale.

    So where do these examples leave operators in mature markets excited by the concept of mobile money? Firstly, with a reality check, says McMahon.

    Reality Check
    Mobile Money, like many two-sided business opportunities, isn’t a high margin business. PayPal, for example works on 20% margins. Visa does manage to reach the mid to high forties but that’s with a different brand-based model in which it charges both users and merchants, so does not provide a representative baseline. Safaricom’s 20% margin has taken four years to reach and has been built by adding extra capabilities, such as transfer, app and content payments, airtime for friends/family etc.

    Cost Control
    Keeping control of costs is paramount. In particular, costs associated with cash in and out need to be reigned in. And here lies an important lesson for mobile operators - that to use the cost structures of pre-pay top up would be inadequate. The cost of paying cash for mobile top up runs at 3-6% (double that for cash out as well) and that is too high for a low margin business. It is a lesson that Apple is learning, said McMahon, who questioned the profitability of Apple’s iTunes wallet which uses pre-pay cards, a method which operators have found too expensive for their own top up services.

    Mature Opportunities
    McMahon did identify two possible markets that represent ‘low hanging fruit’ for mature market telcos - youth and immigrant populations. He suggested the UK’s 5 million immigrants keen on sending money home might represent a marginally profitable business, as would this audience in Italy, and also cited Telefonica O2’s recent payment card aimed at the youth segment as an example of targeting a ripe market opportunity.

    Youth Virtual Target
    The youth market was very much a focus for Rodger Desai, Co-founder and CEO of Payfone, who argued that there is a pent up demand for an alternative payment method for buying virtual goods - online apps and content. He said only 1.5 billion of the 4 billion mobile phone users worldwide has a credit card but even more significantly, in the all important 13 to 22 year old age group the number of credit card holders falls to a mere only 200,000.

    Premium SMS Broken
    But, he claimed, the current alternatives to credit cards are broken. On one side, payment systems outside of credit cards cannot deal with the cross border, cross currency payments that are an important part of the virtual world and, on the other, existing mobile payment systems for content such as premium SMS are outdated, expensive and flawed.

    Roaming Looks Like Financial Transactions
    A far superior alternative already exists for operators in their roaming structures and Desai described a roaming call as looking very much like a credit card transaction. It does a credit check, mediation, clearing, settlement and billing and the roaming structure just needs to be adapted so that it supports transactions between operator billing systems and retailers and brands, not just other operators.

    Payments-based Operator
    Payfone believed in the possibilities of extending the roaming function so much that it became an operator as it was the only way to access the roaming systems. Payfone’s precedent would also suggest that operators and carrier service divisions should at least examine the roaming-based payment services opportunity in earnest.

    (Ed. Further information and analysis from the Brainstorms will be made available to attendees and members of the Telco 2.0 Executive Briefing Subscription Service. For future Brainstorms and Virtual Events, please see here or email contact@telco2.net.)

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    Telco 2.0 Smart Grids Virtual Event: 30 March - 1 April


    If you’re interested in opportunities in Smart Grids, do log in to this global virtual event on 30th March to 1st April at this link. It’s free.

    Details and agenda below:


    Traditional “broadcast” electrical, gas and thermal energy distribution networks are being upgraded into smart grids - vast interconnected arrays of smart meters, sensors, controls, micro-generators and domestic appliances. Smart grids will be one of the major components of a new, low-carbon economy. They offer the opportunity to generate, transmit and distribute energy in a far more efficient way, by fully exploiting the power of information and communications. Smart grids could also enable a host of new service capabilities in finance, home appliances, transport and the optimisation of micro-generation. Implementing such changes will be highly disruptive, mistakes costly. New business models will emerge, only a few will survive. The transition from today’s energy industry structure to new value networks is full of risk and cost as well as opportunity. Join us to find out how to make smart grids the place to make smart money.

    Why is the Telco 2.0 Initiative hosting this virtual event?

    Smart Grids bring together two worlds: energy and ICT, in a unique setting designed to identify how they can create new opportunities and drive innovation. This event will do more than explore how energy suppliers can become more efficient in the transmission and distribution of power. Telco 2.0 has built a rich understanding of how telecoms operators and IT players are meeting the challenges and opportunities brought by disruptive internet technologies. With this event, Telco 2.0 brings this understanding to the energy industry, along with insights into the implications for existing and new players.

    Who should log-in to this virtual event?

    • Energy Industry - IT/Network Directors, Operations Directors, Strategic Planning teams, Customer Care, Business Development, Regulatory Affairs
    • Telecoms operators - IT/Network Directors, Operations Directors, Strategic Planning, Business Development, Regulatory Affairs
    • Manufacturers/Vendors - C-level execs, Product Managers, Marketing and Strategy teams
    • Software vendors/System Integrators - C-level execs, Project Directors, Marketing and Strategy teams
    • Government/regulatory agencies - Energy, utility, and telecoms
    • Financial community - Investors, analysts and commentators

    What will you learn from the virtual event?

    • REDEFINE what ‘smart grids’ really mean
    • DISCOVER new ‘2-sided’ business model opportunities that smart grids will enable
    • EVALUATE the success of vendors and system developers and their projects
    • ANALYSE the impact current smart grid technology could have on future smart grid economics
    • EXPLORE the regulatory and policy approaches to ensuring smart grids deliver their full potential
    • UNDERSTAND the financial and environmental benefits of smart grid investment
    • MITIGATE against taking the wrong paths towards smart grid implementation


    12:30 - 13:00 The Smart Grid value chain - myths and realities - Christine Hertzog, Author of Smart Grid Dictionary

    • What exactly is and is not a ‘Smart Grid’?
    • How will they work? Who’s involved?
    • Who are the leading players around the world?
    • What are the key differences in international markets?
    • What are the key trends and issues to look out for?

    13:00 - 13:30 Why and how are governments around the world supporting Smart Grids to boost economic growth and enable innovation? - Lord Hunt, Minister of State for the UK Department of Energy and Climate Change

    13:30 - 14:00 Disruptive opportunities for new entrants and existing players - Stuart Newstead, Associate, Telco 2.0 Initiative

    Smart Grids will transform the electricity industry, ensuring transparency and significant opportunities for new entrants into the market with limited barriers to entry. New opportunities for existing players and new entrants: energy suppliers, telcos, automotive, white goods, finance, lifestyle brands and environmental enterprises:

    • The potential to sell power usage alongside consumer products is an exciting prospect for consumers and producers

    • Brokerage of demand response for peak curtailment or peak levelling: consumers exchanging control of non-essential devices in exchange for lower power costs

    • Finance, management and optimisation of domestic and small-scale micro-generation (renewables, combined heat and power)

    14:00 - 15:30 Best Practice Case Studies

    • Smart Metering at British Gas (UK) - Peter Allison, Head of Smart Metering

    • Smart Grid Technology Centers at National Grid (USA) - TBC

    • Leading European/Asian example - TBC

    15:30 - 16:30 Industry next steps - Panel discussion

    • How to meet 2020 commitments?

    • What are the milestones in 2010, 2012, and 2015?

    • What do we need to get right now?

    • Who could be the winners and who will miss out?

    Senior execs from international Energy, IT, Telecoms, Government sectors (TBC)…

    [Ed. - for more information contact us]

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    February 9, 2010

    Digital Advertising 2.0: A New Value Chain

    Mobile advertising is starting to come of age. Agencies are beginning to build successful campaigns based on a growing understanding of the strengths of the channel, and opening interesting new business model opportunities for telcos in the process.

    That was the view of David Lang, President Mindshare Entertainment, speaking at the 8th Telco 2.0 Brainstorm held in Orlando in December. He said that agencies and clients are starting to use its two-way capacity to build communities and content and therefore creating alternative value chains in which telcos can play more than just a distribution role.

    Lang comes to mobile advertising from a creative angle - he has a TV production background - and his message was one about the potential for advertising to become cool content for operators to promote and attach their own brands to, rather than just being a channel.

    He described two examples of just how valuable that can be to both advertiser and telco. Both involved Sprint Nextel, and in both the distinction between content creator, advertiser and distribution channel roles had blurred.

    Mum’s the Word
    The first, ‘In the Motherhood’, was designed to tap into a rich vein of creative angst from women with painfully funny stories about life as a mother. It called for stories to be submitted on specially chosen subjects and the online community voted on the best. The winning stories were then turned into professionally written and produced mini episodes that were available on line and through Sprint’s WAP ‘What’s New’ page. In fact, they also crossed over to TV and the concept was even taken up by ABC to turn into a TV series, although this wasn’t particularly successful.

    What started as a brand association campaign for Suave hair care products had become a content phenomenon attracting 763,000 hours of engagement, 25 million web views and outperforming Greys Anatomy and Deal or No Deal for hits on Sprint’s ‘What’s New’ page. In effect it was akin to ad-funded YouTube content.

    Doubling Up
    Far from being just a distribution channel Sprint Nextel became associated with cool content, which effectively became advertising for the telco as well. In Lang’s second example, Sprint set out to maximise that association from the start and become a channel for content creation.

    Home for Heroes
    In conjunction with the producers of the TV show, Heroes, Sprint and MindShare produced a campaign to create a new Heroes character. Using text submissions and voting as well as on-line, the campaign built to climax with the introduction of the character created by consumers into the TV show and taking the TV trailer concept to a whole new level.

    Reinventing the Ad Value Chain
    Lang’s presentation is interesting because it reflects just how much advertising is changing to take advantage of multimedia distribution channels. Those changes impact on the value chain and business models for both on-line and mobile advertising, particularly when consumers are used to create content as in the examples cited.

    Lang didn’t talk about revenue sharing, so the monetary value of either campaign to Sprint is impossible to gauge. However, his case studies do offer up examples of a telco playing twice in the advertising value chain and hints at potential for selling social networking, voting and other interactivity as platform or cloud services to advertisers.

    (Ed. Further information and analysis from the Brainstorms will be made available to attendees and members of the Telco 2.0 Executive Briefing Subscription Service. For future Brainstorms and Virtual Events, please see here or email contact@telco2.net.)

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    February 8, 2010

    Telco 2.0 News Review

    Top Stories

    Potentially seismic news in the UK: BT changes its mind on duct-sharing. Both OFCOM and the Conservative Party are keen on the idea - OFCOM had a survey of some ducts carried out, and discovered that a surprisingly large percentage of the UK’s telecoms infrastructure is full of raw sewage, and the Tories have threatened to legislate to force BT to provide ducts if they win the election. Mind you, they also threatened to abolish OFCOM - work that out. It’s a major turnaround for BT, which not so long ago wasn’t even willing to provide street cabinet access for the South Yorkshire Digital Region project.

    As Richard Kramer pointed out at the last Telco 2.0 Executive Brainstorm, telcos have cash, and one thing you can do with cash is burn it through ill-advised mergers and acquisitions. Connected Planet runs down the rumours about the possible fate of T-Mobile USA; DTAG is apparently considering its options, including floating the network and cashing out, selling it to AT&T, or perhaps trying a three-way merger with the surviving regionals, MetroPCS and Leap Wireless. They make the excellent point that there is a potential fit between T-Mobile’s odd 1700MHz spectrum hoard and AT&T’s (also unusual) 850MHz 3G net - it’s apparently easier to find datacards, dongles, and embedded devices that work with T-Mobile’s network, so the 850s could be an overlay network for voice and messaging while much of the heavy data lifting gets offloaded to an urban-centric 1700 network.

    Offloading heavy data is a bit of a theme at the moment. AT&T has just cleared the mobile version of Slingbox for launch; that’s going to be a bandwidth hog of significant proportions. At TelecomFinance the other week, O2 veep Mike Short was rather proud of all the extra WLAN hotspots they’d acquired in advance of getting the iPhone. Now, Brough Turner has a must-read post on exactly why WLAN managed offload makes more sense than femtocells. He points out that between 96 and 99 per cent of all mobile data usage is heading for the open Internet - so making it transit a mobile switching centre or even just an RNC is pure cost. (Stick a fork in IMS.) Further, WLAN equipment is better than ever and cheaper than femto. And enterprises aren’t keen on femtos their spiked-collar network admins don’t control.

    What’s missing? Obviously, a wholesale business model to link the fixed and mobile operators, as well as a smarter telephony client to route voice traffic via the femtocell and the NGN GAN interface. It’s almost as if we’d already done it…it’s part of our Use Cases project, a key element of our new broadband business models strategy report, and will be a major theme at the next Telco 2.0 Executive Brainstorm.

    Speaking of infrastructure and WLAN, there’s a great piece at Wired on building a radio network in Haiti with the art of long-range Wi-Fi. Relatedly, TelecomTV discusses SMS after the disaster, and who’s sticking to the donations.

    Indian 3G watch: BSNL is now targeting 760 cities for roll-out by September, with 400 to be ready by the end of March. Meanwhile, their massive (93 megasubscriber) GSM network buy has been referred to the Indian prime minister’s technology advisor, holding it up yet again. Vietnam’s MobiFone reported revenues up 52%, as it approaches a planned privatisation. In the UK, OFCOM wants to hike the maximum power limit for 3G operations to 68dBm (it’s logarithmic - that’s a fourfold increase).

    The FCC, on the other hand, doesn’t like “cell boosters” - devices that rebroadcast mobile network signals - as sources of radio interference. Come to think of it, they’re also potentially great solutions for man-in-the-middle attacks on the cellular network…

    Apple seems to be warming up to do something with location-based services. They’ve filed a patent for an application that shares your location with people who call you (this is questionable - quite a few very similar applications already exist), and they’ve forbidden App Store users to offer anything containing location-based ads. There’s more here, including a very general patent that would seem to claim rights over any LBS at all. Apple, the patent troll? You wonder what Google (think Local Search, among other things) will make of that.

    In fact, the big Google story this week was a new piece of G-infrastructure - 1e100.net, a domain that other Google applications and Web pages seem to like talking to. In fact, they fire off constant reverse-DNS queries to it; leading theories about it centre on it being part of Google’s global virtualised-datacentre infrastructure. It may be that the applications look it up to be informed which set of Google servers to connect to, as part of an Akamai Edge Computing-like applications CDN; or alternatively, it may be that it’s a way of monitoring demand for Google services across the Internet, and informing how work is distributed around the Google cloud.

    Or perhaps it’s something to do with this - a partnership between Google and the NSA. So far it’s apparently about analysing the Chinese hacker incident, but you can see why everyone’s paranoid…meanwhile, the EFF is campaigning for a list of tech companies to own up to how much money they made selling spying gear to China.

    Meanwhile, TCP inventor Vint Cerf says we need a new set of protocols to make sure that different clouds can interwork and to prevent customers’ data from being locked in to any particular vendor. (And he works for Google…) Where Google goes, it’s a fair bet Cisco won’t be far behind. Cisco is upgrading its Nexus 7000 routers to improve their capabilities in routing traffic within a cloud of virtualised datacentres - the technology, called OTV, encapsulates Layer 2 Ethernet packets in IP so that multiple data centres can be managed as a single LAN.

    And Microsoft wants data, so much so that it’s letting the US National Science Foundation move a lot of data-intensive projects into its Azure cloud. Did you know some genetics work can produce one terabyte of data per minute?

    Someone else who’s going to need a bigger data centre is Anssi Vanjöki, who announced this week that downloads of Nokia’s Ovi Maps were running at an average of one a second since it went free. Very good, but it’s no excuse for spending $8bn on Navteq. (Oddly enough, Telco 2.0 spotted a Navteq car outside the office the other day - and they have cameras on the roof, like the Googlecar. We chased it down a sidestreet but it got away. What are they planning?)

    In devices news, Nokia has launched an eerily Palm-like smartphone. Google’s Nexus One is selling…slowly. 80,000 of the things are now on the streets, as against a target of 150,000. And you can now get the locations of your family members as an iPhone app from AT&T. Or perhaps your enemies’ locations…

    With the official “go” for iPhone applications involving VoIP over cellular data, Skype is the first out of the blocks, with a client promised “very soon”. We’re guessing that they’ll probably take advantage of their recent deployment of SIP peering with the Skype peer-to-peer network (can we call it a cloud?) and just do a SIP client that hooks up to sip.skype.com, rather than risk passing calls over the cellular air interface more than once.

    In other voice & messaging news, interest in unified comms picks up, and Twitter traffic is free on 3UK. The Guardian’s blog wonders where Facebook is going, six years after launch - it’s still privately held (unlike Google at this stage), and unlike Google or Amazon, it’s not turning a profit yet.

    France’s telecoms tax, intended to finance the publicly-owned TV sector, has been shot down by the European Union.

    Qtel’s CEO says the carrier will give up on investing in Africa and concentrate on…Iraq.

    Microsoft Internet Explorer users on Windows XP or earlier have been warned to switch off JavaScript and ActiveX support - and therefore, about half the Web - or face the risk that their browser will turn into a Web server and serve files on their machine to the Internet at large. The exploit, discovered by Argentine hacker Jorge Luis Alvarez Medina, is apparently impossible to patch. A better solution is probably to just install Firefox already. Relatedly, Microsoft is planning an unusually heavy Patch Tuesday this month including a fix for a 17 year old bug originating in Windows 3.1! They had to fix it now, before the bug got the vote…

    And finally, it seems that someone at Vodafone had a really bad day.

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    February 4, 2010

    Agenda Preview - 9th Telco 2.0 Executive Brainstorm, 28-29 April, London

    The next Telco 2.0 EMEA Executive Brainstorm will take place on 28th-29th April at the Grange Hotel in London, with a pre workshop on ‘Core Telco 2.0 concepts’ on the afternoon of the 27th. Below is a detailed preview of the agenda for our readers. If you would like to book a place, please email us. Early-bird and alumni discounts are available now.

    Event Objective

    To move the Telco 2.0 debate on from the conceptual use cases shared at the 7th (EMEA) and 8th (AMERICAS) Executive Brainstorms to actionable next steps. Through a combination of sessions on trends and specific market opportunities that feature real examples of Telco 2.0 implementations, the audience will hear and participate in debates about how and where to start on the Telco 2.0 roadmap.

    In April we will be looking at:

    * Day One, 28th April: Telco 2.0 Roadmap - Strategic Issues for 2010-2011 (inc. Attracting Investment, Mobile Broadband Network Economics, M2M, Customer Data/Privacy, ‘Living with Google’)
    * Day Two (parallel event 1), 29th April: Digital Entertainment 2.0 - Multi-Platform Distribution (inc. online video, TV 2.0, mobile app stores, devices)
    * Day Two (parallel event 2), 29th April: Enterprise 2.0 - New Opportunities in Business Services and Wholesale (inc. Enterprise Voice, Advertising & Marketing, Healthcare, Financial Services, Carrier Services)

    We will also run a half day afternoon pre-event workshop on 27th April on core Telco 2.0 principles and business model innovation frameworks for those new to our events, or in need of a refresher.


    Up to 300 execs responsible for the development and implementation of strategy and new business including but not limited to CxOs, Strategists, Strategic Marketing, Business Development, Technology Architects, ICT product developers from Telcos and Vendors; Managers from the Advertising, Media, Healthcare, Energy and Financial sectors focused on the development of digital and/or mobile functionality into their business practices.

    The detailed agenda is below:

    Event Structure

    Day 0: Pre-Event Telco 2.0 Workshop

    This is a hands-on workshop providing:

    • Background on the need for business model innovation in the telco industry

    • Introduction to the principles of two-sided business models

    • Explanation of the potential size of new ‘upstream’ business

    • Identification of the key enablers, barriers and industry initiatives associated with two-sided models

    Who Should Participate

    Anyone who is attending a Telco 2.0 Brainstorm for the first time or wants a more comprehensive understanding of the principles, as these form the basis of the debate over the following two days.

    Day 1: Telco 2.0 Strategic Issues 2010-2011

    This is a full day session combining key industry trends and specific Telco 2.0 market opportunities, featuring interactive debates and audience votes.

    Session 1: Investment 2.0 - Building Confidence in Telco 2.0

    What to Expect

    This opening session explores how the industry can innovate with Telco 2.0 in order to replace the dying telco business model and attract investors back to Europe’s telcos. It will feature:

    • Initial findings from STL Partners’ new strategy report, ‘From Theory to Practice: the Roadmap to ‘two-sided’ Telecoms Business Models,’ which will be published in full later in 2010

    • Insights from both the retail and wholesale telco businesses about the steps they are taking and looking to introduce two-sided business models

    • Insights from Fund Managers about how telcos can strengthen their perceived and real values.

    Session 2: Mobile Broadband Network Economics - Creating a 2.0 Cost Structure

    What to Expect

    Mobile Broadband usage has taken off exponentially following the introduction of flat rate and bundled tariffs, faster technologies, such as HSDPA and game-changing devices such as dongles and the iPhone. These new capabilities create potential for new business growth but we are increasingly seeing cheap services delivered on expensive networks, a trend which is unsustainable as illustrated below.

    This session will concentrate on the cost side of operating networks and cover the ways in which operators can change their cost structures to better support the Telco 2.0 world. It will include:

    • Identification of methods for reducing the cost base including offload, backhaul

    • A debate on the value and options for traffic shaping and management - white elephant or
      industry saviour?

    • The rise of managed services and what this means maintaining control of the network

    • Whether the cost controls envisaged support or undermine the functionality required for telcos to fully embrace the Telco 2.0 opportunity

    For background on Telco 2.0’s views on the broadband incentive problem and mobile broadband economics, see:
    The broadband incentive problem
    iPlayer Nukes Networks
    Video, the Achilles Heel of mobile ISPs
    Broadband Business Models - Report

    Session 3: M2M - Opportunities Beyond Connectivity

    What to Expect

    M2M has been routinely referenced over the last decade as a possible source of major industry growth when P2P penetration reaches saturation but it has failed to take off to the scale predicted. Recently, there has been more noise around the embedded market - the so-called ‘Network of Things’ This session will cover:

    • Why the time is right for M2M now to fulfil its potential and what the catalysts are

    • What barriers remain to widespread take-up including cost of modules and cost of operation

    • Which verticals segments have the most potential for telcos in the short and long term; which represent the low hanging fruit

    • Real and practical examples of where solutions have been built around M2M that go well beyond connectivity to integrate with business processes much further up the delivery chain.

    • New research findings from STL Partners’ M2M experts

    For background on telco 2.0-style implementations of M2M, see this interview with Maurice Thompson, Director of Verizon Wireless’s Open Development initiative (ODI).

    Session 4: Customer Data and Privacy - Monetising the Opportunity

    What to Expect

    When discussing telco assets that could form the basis of new revenue streams, customer data always comes high on the list but using that data to sell to third parties is fraught with dangers and difficulties. This session will examine:

    • The possible role(s) for telcos in the information trade and interaction with other stakeholders

    • The size of the opportunity

    • The issues around targeting and aggregation and whether it is possible to do both

    • The risks and rewards associated with being ‘custodians’ of customer data

    • The practicalities and realities of extracting, managing and using the quantities of data involved

    And it will feature:

    • New research findings from STL Partners’ Customer Data and Privacy experts

    • Output from the first International Privacy Summit

    For more on Customer Data and Privacy from Telco 2.0 see:
    Move Networks: Winning With Customer Data
    Overview of the first International Privacy Summit
    Unlocking the Value of Customer Data - Report

    Session 5: Living with Google - Cooperating and Competing

    What to Expect

    There is no doubt that Google has made a huge impact on the telecoms business and that it is in the business for the long haul. This session has been designed to provide an in-depth and independent analysis of the realties of what Google has already done and where it might steer its mighty submarine in the future. It will feature:

    • When and where telcos can cooperate with Google

    • When and where telcos can compete with Google and what assets and capabilities they need to do this

    • How telcos can avoid losing another core asset as they did with location

    • What different strategies have already been employed by telcos in their dealings with Google

    • Whether different strategies are necessary for Tier 1 and Tier 2/3 telcos

    • Can telcos expect the other major Internet players - Amazon, Apple, Facebook, Skype etc - to develop in a similar way to Google?

    New research on Google and telcos from Telco 2.0

    To read Telco 2.0’s existing analysis of the position of Google and YouTube see:
    How to Deal with Google - Report
    How Google Makes Money From YouTube - Report
    How YouTube Makes Money - Blog post

    Day 2: Parallel Events

    Divided into two streams, day 2 provides in-depth analysis of two areas that have the potential to be at the centre of telco 2.0 business development - digital entertainment and enterprise services.

    Event A: Digital Entertainment 2.0 - Multi-platform distribution

    What to Expect

    This day-long event will examine the ways in which fixed and mobile operators are currently involved in the distribution of digital entertainment and the ways in which it should to develop in the value chain for greater value. It will include sessions on critical areas of development, including video and mobile apps, which will define value that entertainment will offer the telco world. Structured in five separate sessions, it also features new research from Telco 2.0’s entertainment experts.

    Who Should Participate

    CxOs, Strategists, Strategic Marketing, Business Development, Technology Architects, ICT Product Developers involved in entertainment-based product and services in the telcos and vendors plus senior managers from the Media, Entertainment and Broadcasting involved in developing new digital businesses.
    For background on Telco 2.0’s views on digital entertainment, check out:
    CDNs and Web Video Dominate the Internet
    Amazon versus Akamai
    Akamai as a Platform Business
    Broadband Video Market Survey

    Session 1: Trends in Digital Entertainment

    Flat rate data plans and increasingly rich multimedia content are setting the telco and entertainment industries on a collision course. This session will look at the trends in digital entertainment that have already hit the telco and those that are still to come. It will cover:

    • Established trends in video - IPTV, VoD, Time Shifting and how these impact of telcos

    • New trends in video - HD and 3D - how will telco networks cope?

    • The rise of digital publishing and user-generated content

    • How telcos can make businesses from entertainment

    Session 2: TV 2.0 and the Battle for the Home Hub

    Communication from the home to the outside world has always bee the telco’s domain. However, with set-top boxes, games consoles and even Digital TVs now acting as hubs with telco capabilities, the telco is facing a changing landscape in its back yard. This session will cover:

    • Are connected set-top boxes, games consoles and TVs a threat to the telco’s position in the home and its downstream revenue?

    • Are the positions of all the players the same or should telcos be looking for partners from broadcasters, games platform providers or media companies.

    • Are there upstream revenue opportunities to be gleamed from better wholesale agreements in terms of QoS, customer service, billing?

    • How can telcos better package/integrate their voice and messaging services for these other players to build telco value?

    Session 3: Online Video Distribution 2.0

    Video distribution has changed dramatically and the Internet is the distribution channel of choice for the ever-growing library of user-generated content and of growing appeal for professional content. For the telco this means one thing - increasing demands on network capacity. This session will cover:

    • Whether on-line video is commercially viable

    • Use cases for how telcos can support and build revenue on data-hungry video services such as HD

    • Evolving IPTV business models - on demand, subscription, pay-per-view, free/ad-funded in a in a time and place shifting environment - can advertising support it all and what are the other options?

    • What’s the relationship between telcos, broadcasters and Content delivery Networks? How can they understand each other better?

    • Can telcos have a role in the video distribution upstream sell - recommendation engines, social media, IPTV as a retail platform etc.

    Session 4: Mobile App Stores - the Race for Retail

    Nothing has made more impact on mobile industry headlines that app stores and Apple’sss in particular. This session will search behind the headlines to look at:

    • Whether operators should create their own app stores - what are the pros and cons and are there different strategies for tier 1 and 2 telcos?

    • What impact will handset vendor app stores have and what do these mean for operators?

    • Other than app stores, what else can operators offer developers?

    • Is the API opportunity a realisable one and in what sort of timescale?

    Session 5: Securing Revenue with New Devices

    On the back of mobile broadband and to a lesser extend M2M, there has come a new type of app-specific connected device around which value propositions are being built. This session will cover:

    • The impact of mobile broadband dongles and building revenues on top with pre-pay bundles

    • The Kindle experience and potential for e-readers. Where’s the business model?

    • How do operators stake a claim in a value chain built around linking a service and device, whether it’s the iPhone, e-reader or something new?

    • With so much data on multiple devices, where will it all the data be stored. Are there opportunities for telcos in storage/cloud either as a churn reducer or revenue generator?

    Event B: Enterprise 2.0 - New Opportunities in Wholesale and Enterprise Services

    What to Expect

    This day-long stream will examine in detail the new enterprise or upstream business development opportunities in a range of key growth areas, including the telecoms itself. Revealing the disproportionate value enterprises can derive from comms-enabled business processes, it will identify the opportunity these upstream businesses offer to telcos and look at the examples of new business models being built by retail, wholesale and carrier services divisions within telcos. Organised in five separate sessions as detailed below, it will also feature new research from STL Partners’ 2-sided business model experts.

    Who Should Attend

    CxOs, Strategists, Strategic Marketing, Business Development, Technology Architects, ICT Product Developers involved in engaging and developing products for upstream customers within the telcos, telco Wholesale and Carrier Services divisions and vendors, plus Senior Managers from the Energy, Healthcare and Financial Services Sectors, Media Planners and Buyers, Advertising Agencies and Brand.

    Session 1: Defining and Sizing New Enterprise Market Opportunities

    The new enterprise opportunity is beginning to be recognised by telcos as a credible source or new revenue but there is still great confusion over where to start, how to scale and which divisions within telcos should be targeting these markets. It will include:

    • Defining and sizing the market including identification of major growth areas that will be covered in later sessions

    • Explanations and examples of comms-enabled business processes (CEBP)

    • The identification of some of the key assets and functions that are common to multiple upstream customers

    • Building appropriate platforms to scale up with the business

    For background on Telco 2.0’s views on Enterprise 2.0, check out:
    What Telcos can Offer for Business Process Optimisation
    Convergence of CEBP and Voice 2.0 - Report

    Session 2: Growth Sector 1 - Advertising and Marketing Services

    Concentrating primarily on Mobile Marketing, one of the hottest topics in the telecoms industry as it represents a significant new business model for telcos. It is often surrounded by hype and talked about in vague terms. This session will given practical guidance on mobile marketing and how opportunities in this space can best be realised. It will identify tangible opportunities and debate issues around key points of engagement between telcos and advertisers. Featuring leading mobile marketing experts it will explore:

    • Case study examples of successful and less successful mobile marketing implementations

    • Detailed analysis of the key touch points between media owners, media buyers and telcos, including: media planning, media exchange amongst operators, ad booking, campaign management and measurement and metrics

    • Use cases from Telco 2.0 and partner companies exploring current and future opportunities in the mobile marketing space

    For more on Telco 2.0’s views on the Mobile Marketing Opportunity, see:
    Text-based Mobile Marketing and Advertising Use Cases
    O2 and Buongiorno 2-sided Advertising Case Study

    Session 3: Growth Sector 2 - Financial Services

    Financial services have provided telcos with a rich new vein of business, particularly in emerging markets, where the reach and ubiquity of the mobile platform have proved irresistible to financial institutions and consumers alike. This session will examine:

    • The emergence of telco carrier service platforms as natural enablers of financial services

    • Analysis of the models for the integration of financial institutions and telcos to deliver mobile money

    • An examination of the relative failure of payment solutions compared to transfers.

    • Examples of payment successes and their applicability to Europe

    For more background on Financial Services from the Telco 2.0 team, see:
    Report - Mobile Payments: Lessons and Leaders
    Intersection of MVNOs, Roaming and Money Transfer
    Zoompass, a Developed Market MMT Example
    African Money Transfer Leaders - M-PESA and Zain - Report

    Session 4: Growth Sector 3: Utilities and Healthcare

    These two verticals have attracted more attention from telcos over the last couple of years than any others as both markets are being driven by major trends that cry out for the cost and operational efficiencies comms-enabled business processes can provide. In healthcare, an aging populations and increasing number of patients in long term care, mean cost bases are rising and health services are reaching crisis points. The energy sector, on the other hand, is undergoing a fundamental change as it moves to more environmentally friendly solutions. This session will cover:

    • The identification and prioritisation of the different areas of activity that fall under the health banner

    • The barriers to launch including interoperability, regulation, cultural differences and business models

    • The development of smart grid services and the role of telcos

    • Output from the Telco 2.0 1st Smart Grid Virtual Summit

    • Examples of effective services and business models for both sectors
    • Updates on the latest initiatives aimed towards interoperable standards.

    For more background on Healthcare 2.0 and Smart Grids from the Telco 2.0 team, see:
    Web-telephony Integration for Better Medical Outcomes
    Report: Five Use Cases including Smart Grids

    Session 5: Growth Sector 4 - Telco 2.0 Wholesale

    Easily forgotten amongst the exciting new vertical markets is what could prove to be the largest upstream opportunity of them all - the telecoms market itself. Wholesale and Carrier Services divisions are predicated on inter-telco business and there is every reason to believe that telco 2.0 will enhance and even transform these businesses. It will include:

    • The future opportunity in collectively providing multi-modal rich wholesale capabilities

    • How far has the mobile hubbing concept come and how applicable is it to new service opportunities - which services are most applicable to this?
    • What additional services can be built on top of existing interconnect and roaming structures

    • How should wholesale departments of fixed carriers ramp up capabilities to deal with the mobile broadband off load and backhaul requirements?

    (NB: if you would like to book a place, please email us. Early-bird and alumni discounts available now):

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    February 1, 2010

    Finance 2.0: nice assets, but where’s the business model?

    Telco 2.0 had the opportunity to attend Telecom Finance last week, a conference for investors, bankers and advisors working in the telco industry. Here are some of our impressions of the key themes…

    1) Fear and loathing

    Everyone was putting on a brave face and trying to talk up M&A deals, but there was an undercurrent of dread. As one of the speakers said, “the Macquarie deals aren’t coming back”; finance for big LBOs and mergers is no longer available, and you’ll struggle to get big network upgrades in developed markets funded. Further, whatever major deals do manage to get financed are likely to come on very strict terms. The days when infrastructure funds, like Macquarie, was able to borrow dirt cheap and take out equity from their investments have gone with the crisis.

    2) The vital importance of holes in the ground

    There was a lot of interest in holes - the civil engineering infrastructure. Specifically, everyone at TelecomFinance was keen on buying towers, rights of way, dark fibre etc, as well as promoting network-sharing deals. Of course, these are the kind of low-risk projects, backed up by steady cashflows as well as a near-indestructible asset base, that are likely to be feasible in a traumatised financial environment. And they are also large. No wonder the financiers like them. But it wasn’t just that - access to ducts, towers, and passive infrastructure generally was highly popular as a strategy for FTTH and LTE deployment and also for managing regulators.

    Darragh Stokes from Hardiman Telecom made the excellent point that operators and their financiers had imagined that all the value would be at layer 3, the network layer, and above, and had therefore gone into the whole telco-as-media company vision in a big way. That had proved to be totally delusional. Web 2.0, software, and content players had won, and now a lot of the operators who did it were stuck without the key assets they sold. There is of course a curious tension here; on one hand, stressing the importance and value of the civil works infrastructure, and also vigorously promoting the idea of selling it to a bank or other investor.

    Investors Dread Multiple LTE Rollouts

    The explanation of this paradox is that, we suspect, a lot of investors see selling off layer zero assets (like towers or ducts) as the fastest way to get network-sharing implemented. There is real dread among investors at the prospect of multiple LTE roll-outs. On the fixed side, duct-access is also seen as a sensible way to deliver the promises of FTTH - especially the potential OPEX savings - while also pleasing the regulators.

    Losing the local loop

    The dominating factor here is that the ex-incumbents still probably see their control of the local loop as being valuable - it’s the cost of civil works, not anything else, that protects them from other players just laying their own lines. Without it, the whole intricate dance of regulation wouldn’t get started. But the deep, dark secret is that they desperately need to do the job; not only is the copper network limited, it’s also a fearsome OPEX sink, and its value is draining away.

    PSTN - a Spent Force

    At the event, Eircom described how customers were actually churning from their ADSL service towards cellular broadband, now about 30% of the market. Of course, this probably isn’t a sustainable deal from the backhaul point of view, but it demonstrates that the users perceive less and less value in the copper line, and in fact, it may be losing its traditional status as a recession-proof utility. As Ireland is battered by the economic crisis, rather than cut back on “luxury” mobile services, subscribers have kept the mobile and cancelled the PSTN line. Line loss was running at 7% annually.

    Similarly, Portugal Telecom (PT) has been running a major ad campaign to encourage its subscribers to use fixed voice; according to their CFO, since the cable operators bundled it, it’s been essentially free but usage has been falling steadily.

    Infrastructure sharing, at home and abroad

    PT also gave some of the most convincing arguments for FTTH deployment with duct-sharing - they have around 25,000 route km of access fibre in service. In most of Portugal, they don’t have to provide wholesale service, but they do have to provide duct access at regulated prices. (Where they don’t have to provide duct access, they do have to offer wholesale.) About half the total has more than one operator’s fibre in the ground, and PT is pressing on with deploying more. A major driver of deployment is that they can also provide multichannel TV and send it directly into existing in-building co-ax cables to serve the 2.5 TV sets in an average Portuguese household. They put the cost of FTTH deployment on a par with ADSL2 - as long, of course, as you’ve already got the ducts.

    Jumping on the Tower Bandwagon

    The same arguments hold for emerging-markets infrastructure, but more so due to the lower ARPUs and unusually high costs of civil infrastructure. Les Baillie of Safaricom put the cost of a rural tower in Kenya at $250,000; Darragh Stokes put the cost of one in India at $70,000. The enterprise value of that India tower is $225,000, so you can see the attractiveness of investing in towers - under a network-sharing deal, he said, carriers would expect to pay $600 a month in rent to use it. At the moment, 1.26 operators use an average Indian tower, so the potential for savings on the carriers’ part (and profit on the part of tower-owners) is considerable.

    3) The howling void

    Strangely, in the light of the black picture above, there was very little interest in or awareness of voice as a product. Nobody seemed to have considered that part of the problem is the product, not just the price, and that voice could be better, as we discussed in the Voice & Messaging 2.0 strategy report.. Eircom talked of being keen to capture corporate customers in Northern Ireland and the UK more broadly; but the Derry-based Asterisk specialists Synetrics are doing a roaring trade in enterprise voice deployments, with the biggest so far being a 150,000 line monster. It’s hard to see why anyone would want a traditional Centrex system these days, with companies like the ones in Voice & Messaging 2.0 Innovators’ Directory about.

    (An honourable mention goes to PT, who noted that if consumers wanted good prices on mobile voice, enterprises wanted special features on fixed.)

    Also, with the exception of Safaricom and mobile money transfer, you had to wait the whole conference to hear about transactional B2B Value Added Services (a key Telco 2.0 concept) or better content distribution. In that sense, there was every reason for fear to reign; nobody had very much in the way of progressive proposals to offer other than selling all the towers and paying a special dividend.

    The main exception was the emerging markets. Investors are gagging for emerging market projects, especially in Africa; the buzz factor now that the major submarine cables have landed is fearsome.

    Consolidation Coming…

    However, on the other hand, there’s a tension between the fact that the bankers are desperate to get big African projects out of the door and the blindingly obvious point that Uganda does not need or want six GSM networks. It’s very likely that a lot of investment is not so much going to over-building infrastructure, as over-starting networks - it could be better used building up capacity, or getting any connectivity at all out to the bush, or building missing infrastructures like long haul terrestrial fibre and data centres, but instead it’s being used to start up the sixth mobile network over the capital city’s downtown. The outcome - too many MSCs, not enough trenches by the roadside.

    Elephant in the Room

    There’s an African elephant in the room. As Mike Peo of Nedbank pointed out, it’s very unlikely that networks 3, 4, and 5 will ever be able to build out to the scale networks 1 and 2 have achieved, so they’re going to be stranded investments unless they either consolidate or network-share. Which brings us back to the vital importance of holes. The alternative, of course, is a shakeout with capital destruction. To share this article easily, please click:

    Two-Sided Telco Transaction Processing for Upstream Industries: Guest Post

    This is a guest post from Fergus O’Reilly of SAP. Fergus has written here on the subjects of Billing as a Revenue Opportunity and Monetising app stores. Here, he tackles CRM and two-sided business models. SAP will be exhibiting at Mobile World Congress (Feb 15-18) and hosting a roundtable with Accenture, RIM, Telus and Microsoft on this topic of monetizing services across multiple industries in Barcelona on Feb 15 (details here).

    The dynamics of the multi-sided business models for the Telecoms industry are well explored by the Telco 2.0 initiative. But what are the implications as this model is adopted by other industries? And how can telcos leverage their rating and billing capabilities to gain new business by empowering these other industries in their business model transformation?

    The global explosion of the Internet, of wireless networks, and the rise in broadband capacity is constantly transforming how we connect to the world. Due to product commoditization, shrinking margins, and the need to develop greater customer intimacy, many industries are capitalizing on these technologies and launching innovative new services. By focusing on value-based services, companies stand to find new revenue streams and to profit from greater customer intimacy, but only if they can master the increased volume of transactions with customers and the complexity of the expanding value chain between diverse business partners.

    Drivers for change: Services as a source of revenue growth

    Many formerly product-centric industries have seen their core product revenues decline because of dwindling scope for innovation, commoditization and resulting price wars. Growth through acquisition and industry consolidation can lead to efficiencies and short term revenue growth. But it is only postponing the inevitable decline in product-based revenues.

    One way out of this slump is to shift innovation from products to services: to make the product a platform for the delivery of services. This can create new streams of revenue as well as providing differentiation in the market, thus shoring up the underlying product revenues.


    This is exactly what has been happening in the Heating, Ventilation, and Air-conditioning (HVAC) industry. Building owners and operators typically manage the various pieces of HVAC equipment distributed throughout the building. But as many companies in the HVAC industry are facing revenue growth problems due to competition from low cost manufacturers, some companies have started to introduce service packages with their equipment. Rather than sell just a piece of equipment that will sit up on the roof of the building, the companies are selling an entire environmental monitoring service.

    New technologies such as Machine-to-Machine (M2M) communications and analytics means that all of these things, all of the heating and cooling devices and sensors are now networked and are accessible and controllable remotely. The companies now sell a service that will give building owner a certain level of energy efficiency or meet certain service level agreements (SLAs) for heating or cooling in an office building or on a manufacturing floor. The companies have transformed their product-based business models into a value added services network.

    Drivers for change: Developing a greater customer intimacy

    In most product-centric industries the product manufacturers have little direct ongoing interaction with their end customers. But we are now in an era where manufacturers must know their customers, rapidly adapt to their changing needs and involve them in product co-creation. Developing services sold directly to customers is one way of gaining that greater customer intimacy.

    For example, high tech manufacturer typically have a multi-tiered distribution business model where it is their distributers and retailers who interact directly with customers. This gives the manufacturers great scale and reach and a simplification of their distribution network, but what the manufacturer does not have is a direct contact with the customers.

    They may occasionally interaction with the customers through product registration forms, rebates, promotional programs, or to sell repairs and accessories but these tend to be one-off and occasional.

    By turning their base product into a platform for services, high tech manufactures can establish an infrastructure where they now have a direct relationship with those customers. They can continue to deliver their product through their traditional channels and then on top of that product, they add a layer of services which allow them to figure out exactly how customers are using the products and what value they are getting from that product over time. From this information, the manufacturers can find new streams of revenue by up-selling and cross-selling products or other services from the catalogue.


    Implications: monetizing customer interactions at high volume

    Businesses who adopt the services model like this are generally well organized to do product-based sales through multi-tier distribution. But the dynamics of delivering and selling services direct to customers are very different.

    First, services are priced very differently than products. Products have a unitary or bulk price, generally invoiced upon delivery. Selling services means entering into an ongoing contract with a customer. There can be fees charged up front, on a recurring basis and usage-based fees depending on how and when the customer consumes the service over time. Customers may pay for service in advance in a prepaid mode, or they may receive a bill and pay in arrears. So the way in which a business manages pricing, charging and billing of customers is very different for services.

    Second, volumes of customers and transactions that must be managed go up by one or more orders of magnitude. When selling into multi-tier distribution, product manufacturers generally only need to manage pricing for transactions pertaining to bulk delivery of goods, and the number of distributors that must be managed and invoiced is generally measured in hundreds or thousands at most.

    Selling services direct to customers means managing tens of thousands or even tens of millions of customers. And monetizing service interactions means putting a price on each and every service transaction that happens.

    Product-centric businesses need to adapt their business processes and systems to support these new service pricing models and to handle the massive volumes that are entailed.

    Implications: Third parties want to join in

    Once product-centric industries establish these service platforms the next step is to bring partners into the mix. Having direct customer relationships and a way of monetizing those interactions is a key asset for any company and one which other third parties will be anxious to leverage. Third parties see the service platform owner as a potential distribution channel for their own service offerings. And if the platform owner can take care of the monetization of the bundle of services, then all the better.

    For the platform owner the benefits are twofold. First, there are the potential commissions or revenue share to be gained by charging the third parties for access to the customer base. Second, and often more importantly, there is the additional creation of value for the platform as a whole each time a new third party is brought onboard. Bringing in third parties increases the value of the combined offering for customers, which generates increased customer loyalty, increasing the customer base and consequently attracting even more third parties.

    This is the multi-sided market model benefiting from inbuilt network effects: participants have a built-in incentive to recruit others to the platform.

    Telecom offers best practice for multi-sided service monetization

    Telecom operators are familiar with the above trends within their own industry. They have built processes and systems to handle the resulting velocity of change in pricing models, to manage the huge volumes implied when monetizing services for millions of customers and to efficiently share revenues with third-parties in multi-sided business models.

    But telcos are just waking up to the fact that many other industries are now beginning to face these same challenges as they move to add more and more services. Other industries are surveying the landscape and seeing telcos as a source of best practice, they want to learn from someone else’s mistakes and try to get it right the first time.

    This is an opportunity for telcos to not just package and sell their learning and expertise as some sort of best practice business model consulting, although that is very valuable in itself.

    Most of these emerging services businesses are powered by changes in communications: hyper-connectivity of devices and people, machine to machine (M2M) technology, and cloud computing. So telcos are involved already in empowering this change.

    Telcos should go farther and recognize that monetization of multi-sided business models is a core competency. Service monetization can become a service offering in itself where the telco does billing and revenue sharing on behalf of some other non-telecom business or offers rating and billing to an enterprise as an enterprise solution.

    To exploit this opportunity telecom operators need to equip themselves with business systems that are flexible enough to price, charge and bill for any kind of service which is metered and analyzed based on any criteria that makes sense in the target industry. And these systems need to support multi-tenant operations and scale up gracefully as services business take off all over the economy.

    If telecom operators do not seize this opportunity then other industries will eventually figure this out on their own, probably poaching good ideas and some good people from the telcos in the process. But having telcos more actively involved would accelerate change for the benefit of all players.

    SAP will be exhibiting at Mobile World Congress (Feb 15-18) and hosting a roundtable on this topic of monetizing services across multiple industries in Barcelona on Feb 15. Panelists include representatives from IDC (moderator), Accenture, Microsoft, RIM, and Telus, You can visit SAP during Mobile World congress at booth D82 in Hall 2 and register for the roundtable here. For more information, please contact the SAP Convergent Charging press manager: Michele Landel

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    Telco 2.0 News Review

    Top Stories

    We’ve said before that the leading actor in the deployment of fibre is increasingly the State. Brazil looks like it could be the latest, and one of the biggest, examples - as part of its national broadband plan, the Brazilian government is considering investing $10.7bn in publicly-owned infrastructure to reach remote and underserved areas. On a similar theme but much smaller scale, the proposals are now in from carriers and others wishing to join the New Zealand government’s Crown Fibre Holdings, which intends to deploy open-access dark fibre throughout the country.

    They’re also looking at shared or public solutions to the mobile industry’s layer zero problems; the regulator says that they’re keen on the idea of only one shared LTE network, as deploying even one more system would involve doubling the national fleet of base stations. In other infrastructure news, 3UK switched on its 10,000th Node-B as part of a major capacity build that will eventually take their network to 13,000 towers - that’s almost six times as many as there are in New Zealand.

    The UK’s independent spectrum broker - aka regular Telco 2.0 delegate Kip Meek - says there will be no progress on the UK 2.6GHz band before 2011.

    AT&T, meanwhile, said it would “wait and see” about the network demands of the Apple iPad. If it’s anything like the iPhone, this could be a nontrivial issue; but then, it’s a 10” device with a huge touchscreen and no voice capability, so its standard use-case sounds much less mobile and more likely to use WLAN connectivity than the well-known shiny gadget. They expect about half the iPads they sell will be the WLAN-only variant, and are keen to funnel their connectivity through their network of WLAN hotspots. Quote of note:

    One long-time vendor in the offload solutions business, Kineto Wireless, has just introduced a new product, called Smart Wi-Fi Offload, which turns Wi-Fi access points into extensions of a mobile operator’s network, so that customers can receive all their traditional mobile, messaging and data services, including voice, over theWi-Fi connection. The product will be commercially available next quarter.

    You’ve heard of test-driven development; that’s Telco 2.0-driven development.

    On the other hand, AT&T announced an additional $2bn in wireless CAPEX, which sounds like it will be mostly spent pulling backhaul fibre to more base stations.

    They could blame it on Barack Obama, something which would at least endear them to a sizable segment of opinion. This week, rejection notices went out from NTIA to the unlucky losers in the first round of broadband stimulus proposals. And his State of the Union address accounted for a drastic spike in mobile video streaming, with the White House servers shipping out a terabyte of data in total.

    There’s something ironic, in the light of all that, in the fact that the iPad is explicitly designed to keep it on AT&T. And despite all the noise about massive data usage, AT&T actually announced rather good fourth-quarter figures this week.

    Amid all the iHype, Apple quietly climbed down on the iPhone voice-over-IP row. iCall, Fring, and Acrobits all discovered that their applications now work over UMTS data as well as over WLAN. You could also use Google Voice in a browser, released this week - although you’d still be paying call charges and you can’t use either cellular data or a free WLAN hotspot, so you might wonder what the point would be. It is, however, an interesting use of the capabilities of HTML5 - on that, Google and Apple are a model of harmony, as this rant of Steve Jobs’s against Adobe Flash suggests.

    Meanwhile, it’s time to cut to the vidiprinter and the voice of James Alexander Gordon. Strategy Analytics’s market numbers are out for Q409, and they’re more than interesting. Smartphone shipments were up 30% year-on-year, while the overall market grew 12% - to put it another way, the smartphone segment is taking over the market. The beneficiaries are Apple, RIM, and Nokia - Nokia’s share of smartphones was 39.2%, up from 37%, RIM’s 20.2%, up from 18.6%, and Apple’s went from 10.8% to 16.4%. It’s worth noting that Apple doubled its volume while only gaining 5.6 percentage points of share - clearly, a very large proportion of iPhone sales are accounted for by growth in the smartphone sector, rather than competition within it.

    So, we’re declaring final victory on our prediction from MWC 2009 that 2009 would be the year of the mid-market squeeze. All other vendors’ smartphone shipments actually fell, and the growth of the smartphone sector combined with the robust super-discount market to hammer Motorola, Sony-Ericsson and friends. Quite possibly, the phrase “feature phone” is now ripe for retirement.

    There were numbers out from Nokia as well. Device shipments were up 12% overall, but sales (i.e. by value) were down 4% - which shows the flip side of the smartphone boom rather well. The smartphone market is expanding, but it’s doing so because the devices are getting cheaper. Not sure what to make of this feature, though.

    However, Qualcomm cut its sales forecasts, blaming the “muted” recovery in developed markets.

    Connected Planet wonders if Spotify will work in the US. Interestingly, they also proivide some numbers - apparently, it needs between 10-12% of the users to convert to the paid-for version in order to cover royalty payments. But only about 4% of users in the UK and Spain, currently its biggest markets, are paying. Oh dear. A possible comment on this is Nokia’s decision to offer an X6 without Comes With Music and with less storage.

    Verizon Wireless, meanwhile, is offering a micro-SD card with 1,000 “snippets” of music, and some 4GB of spare storage. The idea is that you pay for the card, and then download stuff you like from their VCAST content store. Wouldn’t it be better to ship the cards loaded with music they’ve already paid for, and let them get anything additional from the store? It seems a strangely annoying product.

    Meanwhile in content, it was the weekend of the Amazon-Macmillan e-book wars. Amazon.com pulled all Macmillan titles from the Kindle and its websites, complaining that Macmillan wanted too much money; there was a storm of protest; Macmillan refused to give in; and Amazon backed down. An author’s perspective is here: come to think of it, Macmillan could have distributed e-books over Cloudfront and used Amazon IT resources, and presumably the margin on traditional wholesaling is better…

    This is an example of King Content pulling a goal back against King Kong Distribution, and it’s worth thinking about why our usual assumptions are wrong here. If distribution is the dominant factor, it’s usually because it’s difficult to replace - scarcity, in other words. But e-books are very unlike either paper ones, or some other forms of content like video or music - books are text, and text is light compared to its information payload and hence its value. A lot of Amazon’s value is in its logistics operation, but this is less important when the content to be distributed is text.

    In other content news, for €0.79, iPhone users can get the speeches of Benito Mussolini as an app.

    Firefox is now available on one mobile device at least - the Nokia N900. Details here suggest it has most of the PC version’s feature set, and notably the HTML5 Geolocation API.

    Meet the world’s second most used Web server; the Google Web Server. It’s a Web server used by Google, and that’s roughly all that is widely known about it, except that Netcraft estimates that about 11 million sites are running on it. You wonder why Microsoft even bothers with its server division these days. You can now link your bathroom scales directly to one of those, via the Google Health API. Hacker project for 2010: get access to them and subtly alter the weight readings, causing all kinds of fascinating disturbance to a million ultra-shallow lifestyles.

    More interestingly, Google announced an enhancement to Local Search that lets advertisers embed a click-to-call phone number in their ads, so mobile users can instantly place a call to them. Thought; Google Talk is XMPP, using the JINGLE voice extension. You can already embed an XMPP client in a Web page using strophe.js and XMPP’s specification for tunnelling XMPP connections as HTTP. How long before Google lets you embed free VoIP calls in your ad, and sends you a pack of context information as an instant message as well?

    Avaya has some interesting news; the enterprise voice company, which recently bought up Nortel’s VoIP and PBX assets, is embarking on a partnership with Skype to integrate the global P2P voice network and its various enterprise voice hardware, software, and applications solutions. It is suggested that some Avaya products might be moving into a cloud, and it’s even possible that they might be moving into the Skype network. One to watch.

    Meanwhile, more buzz about HD voice. And hackers succeed in turning handsets into bugs. If you can’t trust your hardware, you can’t trust the software, the network, or anything else.

    An unusual DDOS attack is under way; the bots initiate encrypted SSL connections, and then drop them. The point being that the cryptographic validation is considerably more resource intensive than just handling an HTTP GET request. Apparently, targets included the CIA, PayPal, and Bank of America, whose site was downed on Friday night.

    Telenor’s Indian operation, Unitech Wireless, announced a contract with Harris Stratex to supply all its microwave backhaul needs - likely to be “rather a lot”. However, there were reports this week that the 3G licencing process might be spun out even more.

    Comcast announced it was looking for volunteer users to try out IPv6. The US cable operator is especially concerned by the looming exhaustion of the IPv4 address space, as its CPE devices typically have several routable IP addresses (for user IP traffic, VoIP, cable TV, remote management, etc).

    Verizon announced that it’s integrating its US and global wholesale operations.

    And finally: thinking of using a mobile phone while driving? Think again; thanks to hands-free kits, although people stopped using their phones without them, the rate of road accidents hasn’t changed. Talking on the phone worsens your driving as much as being drunk - voice is, after all, the original killer app.

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

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