The Telco 2.0 'Business Model Map': Part Three, Ten years of turmoil
This is the third in our series of articles depicting how the business model of the telecoms industry is fragmenting. The first article explained the need for the map, and the second article introduces the key concepts that label the axes. Now we're ready to bring on the map. In the final article we'll delve into some more detail as to what is means and how the business model of operators needs to evolve.
Just as a reminder, we've discussed:
- The communications industry is part of a distribution system for bits -- ones and zeros.
- Those bits have value to the users, and sometimes (but not always) there is payment for those bits.
- There are many "bit delivery systems" (e.g. broadcast, Internet, SMS) with varying degrees of vertical integration. The weaker the integration, and the more modular the technology, the more vendors there are and the more control the user has.
- There are also many degrees of commercial integration between the services and the content delivery, with payment varying from fully integrated and automatic (e.g. SMS) to completely separate (e.g. fixed-line Web).
- Strong technical forces are separating bit delivery from the services those bits represent.
- The under-explored territory is where that separation occurs technically, but the commercial side remains integrated.
2007 is a simple world you'll look back on nostalgically
Today we live in a telecosm divided between two major sources of revenue for network operators:
- Full vertical integration of technology and payment for the "traditional" carrier services of telephony and SMS messaging.
- Broadband Internet access.
It's a bi-modal industry located at two extreme corners of our map. Yes, there are some other profit centres (we'll come to them) -- but they're pretty tiny in comparison.
Watching telecom fragment into a dozen little pieces
So it's time to start rolling our clock forwards and seeing what course the industry takes. What we see are many business models for delivering those valuable bits vying for attention. We'll deliberately omit the legend, because it's the big picture that matters, not the detail. Still, the two big ones today are those shown above: telephony/SMS and broadband.
(We blogged an embryonic version of this last summer.)
So it's time to introduce some growth areas for five years out.
At first glance, no surprises. We see the traditional voice and messaging business as being roughly stable, with new growth diverted into quality-of-services enhanced systems such as IMS. (BT are turning on their 21st Century Network right now, so pretty much the entirety of the UK fixed telephony base will have shifted bubbles in five years from now.) IPTV is a growth area, as is broadcasting as mobile TV proves to be a reasonable hit. Broadband -- fixed and wireless -- continues to accelerate.
But there are plenty of other growth areas off that list. What can the rest of the spots on the diagram represent?
A journey of a thousand miles begins with a single step
If you know where the currents are taking you, it gets a bit easier to know how to set your sail, where to point the rudder, and which way to row. So here's our best guess of what the telecommunications industry looks like in ten years, in terms of business model mix.
Now it's time to describe all the rest of the points on our map.
- In the bottom left are free (or subsidised) community or municipal networks. For good or evil, we think that governments will see high social benefit in ubiquitous adoption, and new business models are likely to emerge to support this. Communities themselves will also work together to provide the next generation of access. (The current generation being the widespread "linksys" and "NETGEAR" open wi-fi access points bringing you this very article right now.)
- The bottom-up connectivity model is epitomised by companies like FON. As femtocells and other technologies mature, carriers will embrace hybrid models of network build-out.
- There is a small exception case for services like i-mode or ISP email that use connectivity charges to cross-subsidise services. This is a commercial dead-end but lives on another decade.
- In the middle of the diagram are personal-area networks (PANs) and other unrouted connectivity. Existing examples might include Bluetooth, Zigbee, or even short-range Family Radio Service radios. We agree with Motorola on this one: there's likely to be an explosion of value in this space, and operators are so attached to big centralised networks that they're likely to miss the boat. A whole new raft of players enter based on payments, games, next-gen walkie-talkies, presence sensing, and social media sharing. One to watch.
- The growth in capacity of storage media greatly outstrips that of CPUs, batteries or dynamic memory. Within a decade, you'll be able to buy a music phone with every song every recorded. Soon after, every movie will be thrown in too. Today operators sell devices where the memory is empty. It's like Coke selling aluminium cans with a pack of sugar syrup and instructions to "just add water".
- In reaction to the "one-size-fits-all" nature of IPTV, peer-to-peer content delivery grows -- and the networks evolve to support rather than throttle this behaviour. The content delivery networks (CDNs) incorporate P2P functionality, and everyone is happy.
- Two big growth stories will dominate: one is already on the radar, of ad-funded services and connectivity; the other is service-funded connectivity where the user pays the price they see -- no hidden postage or package charges, no bill shock, no metered usage anxiety.
- An increasing number of devices will come with connectivity embedded as part of the deal, and no recurring charges (at least initially). This is the reverse of the cellular model, where the hardware is subsidised by the service fee. In practise many of these devices will be part of bigger home or automotive services where the cost of billing isn't worth the hassle when the connectivity only forms a small part of the overall solution cost.
- Finally, the shark's fin in the water. Various forms of tiered connectivity are going to emerge at an alternative to full-blown carrier-controlled QoS. Rather than recap everything here, go read our article on Paris Metro Pricing for some insight into the area.
Understanding the limits of the map
You know how Greenland often looks about the size of South America?
In fact, it's about 12% of the area. Well, we've got to confess to some cartographic sins and limitations too:
- We've drawn each of the "business models" as a circle, but in fact within each there are often several differently-positioned sub-models. For example within media-based content, a pre-recorded DVD more tightly couples payment and delivery, as well as medium and content, than a re-recordable DVD. You can't use the size of the blob to represent importance at the same time as making it bigger to encompass the whole space that business model occupies. (With a bit of graphic design skill maybe we'll do a future 3D version that fixes this.)
- There are many sub-models within each business model -- just look at the difference between the 800/freephone number market from that of the premium-rate call market. We can't show all the detail on a world map.
- There may even be shifts in position, for instance as payment APIs are introduced as part of near-field communications services.
- We've lumped everything into one map, fixed and mobile. We think mobile triumphalism is exaggerated -- the model will be unpicked, and fixed operators will learn their billing and packaging tricks. At the risk of using the 'c' word, they'll converge.
In our next (and final) article we'll go into some more detail about the important things to look for in the map, and give you a quick guided tour of the world.