MWC 2012 - Top CEO Strategies: increasingly Telco 2.0, despite tones of 'Goodfellas' and 'sex or smartphone?'
At the opening session of the Mobile World Congress 2012, the CEOs of the world's largest telcos highlighted the pressures on the 'Telco 1.0' business model, and showed some encouraging glimpses of Telco 2.0 thinking.
There was also at times a slightly comical tone with the US and European operator CEOs inadvertently putting one in mind of a Hollywood depiction of a group of underworld bosses at the annual clan meeting, complaining of the city police's crackdown on the racket (Mobile Termination Rates - MTRs), wanting more development land (spectrum) from the government, wanting more 'protection' (from regulators), and complaining about the new gangs in town (the OTTs).
President Li Yue of China Mobile delivered his presentation entirely in Chinese. While what he talked about - China Mobile's platform 'Mobile Market' - was extremely interesting (see China Mobile: mindbogglingly big and interesting), the use of Chinese to deliver the presentation to the almost entirely non-Chinese speaking audience carried perhaps the major unspoken message of the session: now you must come to us.
The theme of his presentation also underlined the different dynamics of the relationships between these telcos and their governments. China Mobile is effectively executing government policy, whereas the others are pursuing shareholder value while increasingly being reined in by governments and regulators in pursuit of economic and sometimes political goals. (See also Telecoms: too important to leave to telcos? and The Roadmap to Telco 2.0 Business Models.)
Serving half the world's mobile customers
As well as President Li, the grandstand opening session featured Vittorio Colao, CEO Vodafone, Ralph de la Vega, CEO AT&T Mobility, and Franco Bernabe, CEO Telecom Italia and Chairman of the GSMA. Between them, these companies have half of the world's mobile phone customers. The session was opened and chaired by Anne Bouverot, Director General, GSMA, who framed the debate by saying that the key challenge facing telecoms operators was how to adapt their business models given the challenges they face.
We will be analysing this theme further, including the need for new dynamics in the relationship between telcos and their regulators (see more below), at our Silicon Valley Executive Brainstorm (27-28 March), and the London Brainstorm (12-13 June).
The beginning of the end of Telco 1.0?
Franco Bernabe, CEO Telecom Italia and this year's GSMA president, picked up the baton and started promisingly, talking up the growth in developing markets, and the promise of new technologies like NFC, RCS-e, and mobile cloud.
However, despite the many wonders of innovation that are coming from the industry, significant investment is needed ($800Bn in the next four years) but revenues are not growing. He then moved on to one of the main messages of the session that was aimed at governments and regulators - that the industry needs a mixture of protection and benevolent 'hands-off' regulation to thrive. He said that 'OTT players', despite an admirable focus on customers, had unfair advantages - they don't have to serve everyone, and are enviably free from regulation.
This was a theme picked up later by Vittorio Colao, CEO Vodafone, and Ralph de la Vega, CEO AT&T, both of whom also called for greater and faster releases of spectrum, again a message aimed at governments, policy makers and regulators. Colao in particular criticised what he called 'auto-pilot' regulation in relation to decisions on mobile termination rates (MTRs).
Neelie Kroes, the redoubtable EU Commissioner, felt strongly enough to issue a statement in response to Colao after the session:
"Message to Vittorio and Vodafone: I call your bluff, and indeed do not respond well to threats. I take the side of the Vodafone customer."
Colao's cries appear to have fallen on further unsympathetic ears as the ministers at the European Parliament's Industry, Telecommunications, Research, and Energy Committee (ITRE) passed a bill capping European MTRs later in the week.
(See also: The Register Mobile net kingpins v the world: 'Why should we pay the 4G tab?')
While we understand the struggle that telcos face fighting pressures on their business models from all directions (see below), it is hard not to view the combat over MTRs and data roaming rates as ugly and regrettable skirmishes in the gradual retreat of Telco 1.0.
And despite the slightly satirical tone of this note, we also understand that the telco CEOs have obligations to their shareholders to defend their sources of value, and that investments in lobbyists and top regulatory lawyers have long held some of the best returns for telcos. But it's becoming increasingly clear at the highest level that telcos need to find new sources of value, and this means embracing the difficult and risky process of business model innovation.
A corollary of this is that the dynamics of the relationship between operators and regulators needs to change too. Particularly in western developed economies facing a period of austerity, and with telecoms operators needing to evolve new business models, a new dialogue needs to begin, moving on from the 20 year 'cold war' of ever tighter regulatory clamp-downs and fostering a new understanding and sustainable regulatory climate for innovation and investment.
While it is certainly encouraging that the supertanker of telco strategy appears to be starting to turn, it is also slightly chastening that Hamid Akhavan, the then CEO of Deutsche Telekom, said back in 2007 that it was the 'year of the business model'. So another 5 years have passed and relatively slow progress has been made in many areas, whereas other business models are have evolved rapidly through innovation (see our report Google, Apple, Facebook - Dealing with the Disruptors).
At least some telcos, now including Singtel, are starting to respond by setting up 'Digital' units, seeing so-called 'OTT' business models as an opportunity as well as a threat.
Some encouraging signs of Telco 2.0
In this vein, and moving on from the regulatory slugfest, Vodafone's Colao talked about 'open infrastructure and co-investment in networks', although he said discussions in Europe had not so far not succeeded. He also said that collaboration was needed to create standards for new services, and mentioned the RCS-e brand 'Joyn' (of which more in further analysis), M-commerce SIM based NFC services, and payments as important areas.
De la Vega also talked about how to keep the innovation cycle going. He said that the keys were to:
• make new services effortless, citing a video call as an example of something that is very difficult to do today;
• enable ecosystem innovation, embracing developers and treating them like customers (also a theme for China Mobile).
In this context, AT&T is targeting developers by building developer foundries in Israel, Texas and Palo Alto, and taking APIs and other tools to them, such as how apps use power and bandwidth.
CEO 'wisdom bites'
Two interesting lists emerged from the CEO presentations that gave the distinct impression of being the latest top-level insights from their consumer research teams.
First, Vodafone's Colao said that customers expect telcos to deliver four things that can only be delivered together by operators (although others can deliver parts):
• 100% ubiquity of data;
• Excellence in service;
• Security and privacy;
• Convenience and trust.
Second, AT&T's de la Vega described themes of emerging consumer behaviour, relating to the adoption of new technologies today across generations compared to two years ago:
• 'Digital Intimacy' - sharing moments and being continually connected;
• 'Digital Kinship' - creating new rituals and fostering shared interests;
• 'Digital Guardianship' - keeping track of family, and never being out of touch;
• 'Digital Heroism' - helping other people use their devices to do things and access information when they need it most.
Sex or Smartphones?
Finally, among a blizzard of investment and penetration figures, perhaps the stat of the day came from Colao, who said that Vodafone's research had revealed that 70% of smartphone customers would rather spend a week without alcohol rather than without their smartphone.
If this is correct, our observations of MWC life in Barcelona imply that many of the attendees may have left their smartphones at home.
We did not research the validity of his other statistic that, to keep their smartphones, 33% would give up sex for a week.