Strategy 2.0: Vodafone's 'Happy Pipe' Vs NTT's 'Two-Sided' Approach in APAC.
Presentations by NTT Research and Vodafone's division containing its African, Indian, and Asia-Pacific operations revealed very different market strategies. Here's a quick preview - we'll be looking at these in more depth in the strategy report 'The Roadmap to New Telco 2.0 Business Models', plus a more detailed Analyst Note on these two case studies, and at our US, EMEA and APAC Brainstorms in H1 2011.
At the recent FT World Telecoms event, Naohide Nagatsu, general manager of NTT Research in Europe, presented on their plans for transition to an all-IP NGN. They intend to switch off the PSTN relatively quickly, which is hardly surprising as 68% of Japanese subscribers are on either FTTH or DOCSIS 3 cable and 96% of mobile subscribers are on one 3G technology or other (there being a choice of NTT DoCoMo's Japanese-flavour 3G, Softbank's UMTS, or KDDI Mobile's CDMA-2000).
NTT is currently making an actual majority of its revenues - 58% - from its ISP and IT solutions businesses, the ones BT terms its New Wave operations. They expect that voice will be down to 25% of revenues in two years' time - a little behind the schedule Telco 2.0 delegates expected way back in 2006, but not by much.
Their response, technically speaking, is heavy on the classic telco elements. The future NGN is intended to provide multiple classes of service over IP, to allow for geographically-targeted quality-of-service, and its edge routers will validate packet headers against e164 telephone numbers in order to prevent evil-doers from disguising the source of their traffic. However, rather than planning to use these powers for evil, a primary use-case is to ensure the voice service works during natural disasters - notably earthquakes.
The most interesting element from a Telco 2.0 perspective is probably organisational - part of the plan is the Service Creation Business Group, which exists to help upstream customers create new applications and services with the capabilities of the core network. This is essentially the original Telco 2.0 platform vision.
Vodafone Africa, Middle East, and Pacific, however, is very different, and not only because they're mobile-centric rather than fixed. Many of the issues its CEO, Nick Read, raised are classic emerging market mobile - for example, OPEX is 14% of service revenue in his division compared with 8% for Vodafone's European operations. They expect that 95% of the total incremental telecoms spend in 2009-2014 will be found in Africa, Asia, and the Pacific, and that 85% of that will be concentrated in mobile.
So far, so typical - it's all about cost control and coping with blindingly fast subscriber growth. However, the really interesting point was that it's possibly mistaken to talk about emerging market operators. In India, mobile penetration is at 140% within the major cities, and 32% in the countryside. ARPU is twice as high in urban India as it is in the country. (This also came up in a recent consulting project for a major African operator - there was very little difference in their CAPEX plans for South Africa and Nigeria.)
So rather than facing either developed markets or undeveloped ones, the industry will increasingly have to deal with all the market types at once, just as radio planners have to deal with urban, suburban, rural, and other propagation models at once. Within the same markets, we have to get good at serving a significant iPhone/BlackBerry userbase while also providing ultra-low cost basic voice and messaging, supporting an emerging developer community, and providing bridge products like Orange's low-cost own brand Android devices.
Read cited infrastructure-sharing, specifically tower-sharing, and innovative network equipment as key enablers in achieving this. Vodafone Essar currently uses 100,000 shared towers (this post is worth re-reading) and is deploying solar power and special "Diet BTS" stations aggressively.
Another issue is operations excellence. Vodafone Egypt, for example, is in the habit of doing extensive analysis of live network utilisation data at the cell site level and plotting the locations of both its own retail outlets and resellers, and those of the competition, against this to see where its customers need to be able to top up, and where their resellers are likely to be able to offer a better service.
Essentially, this is an example of Happy Pipe implementation (in fact, the phrase was used by more than one presenter). Similarly, Matthew Key, CEO of Telefonica O2 Europe, remarked that operators' core business is now about yield management.
And there was an interesting discussion between Rick Halton, VP of Worldwide Marketing for Communications and Media Solutions, HP, and Stephen Howard, HSBC's head of global TMT research, regarding whether fancy pricing models, as opposed to just setting the right price, are worthwhile. Vodafone has had some success with dynamic pricing, offering targeted discounts to encourage usage in underutilised cells and hours. HP, as a major billing vendor, has its own reasons to be keen. Howard made the point, though, that it takes a lot of micro-managing to match the benefits of setting a sensible price across the board, and the IT costs are non-trivial.
The key conclusion here is that the co-existence of multiple market types means that there is scope for both approaches. Operators need to be aware that they might do well to be Telco 2.0 in one market and the Happy Pipe in another, and also that this could be true of different segments or geographical areas within the same market. Of course, the engineering fundamentals for this are the same - efficient basic connectivity in the access layer and service-oriented, developer-friendly architectures for the core.
NB, this post is a preview of a forthcoming Analyst's Note that will go into more detail on this subject. Watch the research site.