Telco 2.0 Case Study: Telenor CPA
Lars Godell, Telenor's VP of Group Strategy, is one of the earliest Telco 2.0 thinkers -- his work on this goes right back to his Forrester Research paper on The Rebirth of European Telecoms in 2001. So it should come as no great surprise that he was speaking at the last Telco 2.0 Industry Brainstorm a couple of months ago. And as Telenor is, among other things, the world's seventh-biggest mobile operator, with 140 million subscribers in 11 territories, there is every reason to listen.
In his presentation, Godell explained how Telenor is trying to develop a two-sided business model, to make wholesale the centre of its business, and in general to move towards "Telenor 2.0". The key to all this, he argues, was their decision back in the rah-rah days not to spend heavily on "content", however good the parties were. Instead, Telenor decided to concentrate on selling, billing, and delivering content on behalf of its creators. Regular readers will obviously recognise this as touching on several key Telco 2.0 themes: selling to upstream (producer) customers as well as downstream (consumer) subscribers, logistics services for valuable data, the importance of wholesaling, and the value of telco OSS-BSS capabilities to third party developers.
So, Telenor established its Content Provider Access (CPA) system, which performs these digital supply chain functions. This provides a reserved range of numbers for premium SMS termination, in order to collect payments from the public, and APIs to deliver the content via Telenor systems once paid for. All parties agree to publish technical information about their services and business models. Revenue is shared with the rest of the value chain at between 55% and 35%. The upshot is that Telenor derives $100 million a year in revenue from CPA in Norway alone.
But Telenor's plans don't stop there; according to Godell, there are three stages in the move to Telenor 2.0. The first is to define the strategy, the second to launch it in at least one of the group's regional operating companies, and the third to start a profitable third-party market. CPA looks a lot like stage 2 at least, but Telenor is increasingly interested in more complicated transactional VAS.
Because of this, they are keen to work with the IPSphere Forum to develop a framework for sharing revenue around the operator, multiple upstream customers, other operators, and downstream subscribers. Godell says there is no single NGN strategy across the 11 operating companies in Telenor -- the real problems aren't in the network engineering side of the telco, but in the back office IT operation. His solution to this is "layered telecoms", with progressively richer third-party integration as you climb the layers away from pure connectivity. But getting there will require a lot of effort to break down the existing silos and the administrative empires attached to them.
As well as a systems architecture for this, you also need the ability for your own developers, to say nothing of third-party developers, to play around and make a mess -- which is almost a contradiction with the idea of a unified systems architecture. So Telenor is launching a pair of developer ecosystems, Playground and iLabs. Playground is a tech-light showcase, intended to help upstream customers and developers commercialise their work, whereas iLabs is designed to let the developers themselves experiment with Telenor network capabilities and data assets.
Content distribution is one thing; but there are quite serious limits on the possible gains from it. There are only so many ringtones. But the biggest source of potential margin, and hence bottom line, will be the emerging field of 'communications-enabled business processes', simply because of the gap between the social value of the information involved and the minimal, SMS/HLR-like marginal cost of the traffic.
Telenor's success in this field depends on how quickly, and how well, they can resolve the IT problem, and on how well they do in attracting developers to iLabs in particular. Further, it's going to be crucial to sell the change internally - according to Godell, culture barriers are a major problem.
Not only is there the nethead/bellhead antagonism between IT and Engineering, but there's a very specific problem for Telco 2.0 in that "wholesale is not a positive word" - traditionally, it's been a Siberian assignment in a noncore, low margin division, whilst all the power and money have gone to the retail marketers. Two-sidedness implies that it's equally important to sell on both sides of the company, so retail has to make room for wholesale - which is not going to be easy.
Further, Telco 2.0 has to concentrate on external innovation, which is another big challenge to sell internally - after years of trying to create a service-development capability inside the telco, it's difficult to say that it's not so important any more, and even more difficult for traditionally straitlaced telco people to hand over control to a bunch of grimy hackers.