In Telco 2.0, nobody "owns" the customer

No doubt there will be lots to say about the successful Telco 2.0 event here over the next few days. Anyone wanting some initial insight into what went on should check out James Enck's summaries of day 1 and day 2.

One thing that's worth sharing again is our defintion of Telco 2.0. Put simply, it's a world where the user drives the selection of connectivity, device, and services. For Enid Blyton fans, users feel it's more like the Land of Take What You Want than Dame Slap's School for Naughty Children. (Telco 2.0 network operators are thus advised to stay well away from the slippery slip and also avoid toffee shocks.)

To illustrate the trend, we performed an analysis of 19 "pinch points" in the value chain for mobile network operators. Some of these are small items like whether the user can change the home page in the browser (and who sets the default). Others are larger and more qualitative things like the power of branding over the user. We then looked at the balance of power between the operators and the "edge" as represented by the handset vendors; and the relative power of the users and the vendors collectively. This is what we found:

There's a sigificant weakening of mobile operator power in progress. The position of handset vendors is strengthening, but it's the user who is increaingly in control. The locus of power is shifting.

A few words on the methodology. Obviously the value network contains more than just network operators and handset vendors. A more comprehensive analysis would look at the full spectrum of aggregators, retailers, content providers, advertisers, and so on. Profit would be expected to follow where the bottlenecks lie.

The underlying process works as follows. Taking "brand" as an example pinch point, we choose between the following statements (or positions inbetween):

  • To the extent the user takes account of branding, the operator brand is everything: the user will accept any handset they're given.
  • Likewise, the handset vendor brand is everything: the user will disregard who the operator is in order to get their choice of handset.

This gives us the core/edge balance. Similarly, we look at the following pair of (extreme) statements and choose the appropriate place on the scale to determine the overall balance between users and the vendors:

  • Brand is everything to the user: they will disregard everything else, including function, in order to access the brand of choice.
  • Brand means nothing to the user, who relies on functional properties of the product or service alone in making their purchase selection.

We also did a similar analysis for fixed operators, and it looked even grimmer, with the profit pool evaporating into consumer surplus.