Restructuring to deliver Telco 2.0 services
We're often asked What is "Telco 2.0"? In short it refers to a world, enabled by IP, which is highly modular and has a horizontal structure of hardware (networks and devices), connectivity and content/services. Users aren't forced into a particular choice of one of these by their preference for another. So an operator offering a single own-brand IPTV service is following a traditional "Telco 1.0" approach of vertical integration; whereas one which creates an efficient content delivery network and opens up to partners (or at least co-opetition) is a Telco 2.0 approach. The products and technology may be similar, but the business models are different.
To deliver these services it should come as no surprise that the organisational structure needs to change. The old style of Telco was network-centric: a business unit for fixed, another for mobile, maybe another for international networks. Slowly that's morphed into customer-centric: enterprise and consumer, making the hardware layer "horizontal" across the business. The network group then also has incentives to seek new wholesale customers so it's not entirely dependent on one or two internal retail groups for its services.
Now we're seeing the third phase of change, as the "horizontal" layers grow to encompass more of the operator's functions. BT have announced that they are establishing two new divisions with a product innovation and delivery focus. Sprint did a very similar thing in my tenure with its Product Realization group, which combined both new product development and operations under one roof. It introduced process innovations such as monthly operations reviews attended by all product managers giving everyone a complete view of the business.
BT's approach also seems to be a "Telco 2.0 compliant" approach, given some caveats. In BT's case, they're following the full set of Telco 2.0 strategies:
- Diversifying into enterprise IT services.
- Separating the network assets into Openreach (pipe).
- Opening up the platform to wholesale partners.
- Protecting and extending their traditional end-user retail product offerings.
That makes for a more complex organisational structure than many other (former) incumbent telcos.
What's interesting is that they describe this new BT Design organisation as a software organisation which then runs on the BT hardware platform. There is a danger here in that you need to understand your comparative advantage against the Internet players: physical assets, brand, payment relationships, local partnerships and knowledge. Purely "virtual" solutions don't do that.
Vodafone have tried and failed with a similar structure -- if anyone has insight into what went wrong, the anonymous comments box is below!
We also like the BT Operate structure. It will clarify the real costs of building and running these services (since there's an internal vendor-supplier relationship). It also exposes BT's delivery units to comparison and competition from outside. Thomas Anglero has some fascinating figures on Amazon's commodity grid computing services. I doubt many (any?) operators can match these. There's a long history of failure of operators in the hosting business, and there's little reason to think that anything has structurally changed to give them the scale and cost structure of Amazon or Google.
If you were a disruptive new entrant into telecom you'd not build a NOC, you'd just hire Amazon to do it all on a massive industrial scale. Or, maybe you're at the other end of the scale and you'd like to start a phone company for $200. Either way, the internal supplier groups will have to justify themselves against the best of the best from outside. It'll do them good.
The start of a process, not the end
There may be more re-structuring needed. For example, my efforts at getting Sprint to create an open API platform (five years too early, but at least we tried) foundered on the rock of organisational structure. As this business model process design diagram from Arvetica shows, if you're going to open up to new business models, you can't assume your existing delivery structures will work.
What we found at Sprint was an internecine struggle for control over the API platform between the dotcom, IT and network groups -- with a confused marketing team (who just wanted to sell ringtones and voice minutes) caught in the middle. We skipped the whole organisational structure bit and went straight from portfolio creation to implementation. BT have gone way further in resolving this than anyone else, but similar battles may lie ahead.
Vendor impact -- mirror your customers
We were doing a workshop on the Business Model Map this week for a large network equipment vendor, and it struck me how difficult it would be for them to sell "Telco 2.0 solutions" to operators. If you're selling a mix of end-user product innovation, enabling open platforms and cost-reducing network equipment you're targeting three different customers: the CMO, CIO and CTO. Furthermore, there may be tension between the needs of these. Opening up the platform to co-opetition is scary for the consumer retail group, but the raison d'etre of the wholesale team.
If you're selling to BT, that's fine because you can have three salesmen with different song sheets singing different tunes. For an operator who hasn't restructured in to be more "horizontal", you'd better stick with a Telco 1.0 selling approach, else you'd look crazy with three salesmen with different messages about the future.