Carphone Warehouse: Broadband Video Decision Time

David Goldie, CEO of Carphone Warehouse Telecoms posed half a dozen big questions around broadband video strategies at the Telco 2.0 brainstorm last month. He was honest enough to say he currently didn't know the answers. Below is our response, which we're sharing on our blog because we feel lots of other telcos around the world can learn from this.

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For those not familiar with the company, Carphone Warehouse is the number one retailer of mobile phones in Europe and is currently expanding in the USA through a partnership with Best Buy.

Carphone's business model was once based around this premise: users didn't know what mobile phone to buy, and were indifferent to which operator, since mobile services worked more or less the same everywhere, so they went to Carphone to check out all the mobile handsets on offer, and get assistance on picking the 'offer-of-the-day' tariff and service provider.

Back in 2003 regulation changed in the UK to allow the profitable reselling of BT voice services. Since Carphone had a very strong retail presence, it seemed a simple step to expand into the home phone business. But, as with the CLECs in the USA, most UK resellers underestimated a number of factors: the cleverness with which the incumbent played the regulatory game, the need for scale, and the sheer bloody hard work of building a services and operational infrastructure. In order to gain scale fast, Carphone went on the acquisition trail buying big voice resellers and the internet access business of AOL UK. Having invested heavily in unbundling, today Carphone is the third largest ISP in the UK after BT and Virgin Media.

The problem they face relates to the move (by all operators in the market) towards more complex bundles of fixed and mobile voice and data, TV and online content. Today these bundles and related services are the cause of confusion in the user's mind, not the phone: users now know what phone to buy (they are more sophisticated in this area), but not which plan.

The biggest strategic challenge facing Carphone is how to position itself in this new world, especially one where broadband video is set to explode. So, David posed these questions to our brainstorm participants:

DG Q1: Who pays? Do we shift to advertising funded models?

Telco 2.0 A1: We believe it is vitally important to create 2-sided business models with revenues coming not only from 'downstream' end-users (consumers, SMEs, Enterprises) but also from 'upstream' content and application providers.

Moving forward there will need to be more innovation in pricing and bundling than in technology. Advertising will never be able to completely fund everything, but will allow upside to certain services. There's a lot more power in engagement than in pure advertising. What can Carphone do to give its end-users an exceptional experience when interacting with merchants or other upstream partners? It doesn't have the assets or relationships to enable the complex value chain needed for "Advertising 2.0" (now with added Cluetrain), so we'd recommend sticking to being a really fine retailer. If you thought being an MVNO or broadband unbundler was hard, entering the meltdown vortex of a media company in parallel would be positively suicidal. Let someone else work out the winning content models, and you help them sell it.

A comment via the Mindshare audience interactivity mechanism after David's presentation drew a pricing parallel with the airline industry:
No frills airlines are now requiring customers to opt out of additional services (luggage, insurance, fast boarding). Will no-frills ISPs such as Carphone do the same to squeeze out a return?

DG Q2: Is control of the home hub important?

Telco 2.0 A2: Absolutely critical.

The home hub will function as both the gateway to the outside world and as the controller of home networking. The home hub is the new "edge of the network" and will be the key battleground. We'll have unbundling and open access rules around home equipment within the decade, to be sure! Carphone could always change its name to "Networked Edge Device Warehouse" (or something more catchy)...

DG Q3: Will content be stored at the network edge or in the CPE (Consumer Premises Equipment)?

Telco 2.0 A3: Both.

Some services will be network based and some home storage based - there will be no single architecture for all services.

A critical success factor will be managing the content that the users themselves create. Their photos and videos of their kids playing are more important than all the DVDs stacked around the telly. It's going to be bi-directional.

DG Q4: What position do we take in NGA (Next Generation Access)?

Telco 2.0 A4: It's absolutely essential to get deeply involved in this debate and to try to influence the future.

Either campaign for a "Swedish" (mixed muni and shared), "Dutch" (muni-private hybrid), or "Danish" (utilityco) solution. Or go for a "Judo" solution and somehow turn (BT) Openreach's universal access approach into a liability. Just don't even think about building any fibre yourself, except as a decoy or spoiler.


DG Q5: Should access providers build a position in content/TV/IPTV?

Telco 2.0 A5: As a mass-market player, definitely not. You'll only end up making Chelsea's footballers even richer. Trying to do everything yourself is impossible and Carphone will be far better partnering.

Another comment via the Mindshare audience interactivity mechanism after David's presentation provided the perfect medicine:
If Carphone do focus on being an 'open facilitator', why don't they offer a charge-to-bill capability to enable the broadest range of content providers to transact with customers?

DG Q6: What mobile content delivery capability do we need?

Telco 2.0 A6: Wrong question. How do you enable a better personal communications experience?

Tomorrow we'll review issues raised by Liberty Global's Managing Director of Corporate Development at the Telco 2.0 event (previewed here).