STL Partners

Telco 2.0 Growth & Innovation

Telcos vs. Internet Players: Act before it’s too late

Summary: There's less than 3 years for telcos to take advantage of key strategic ‘control points’ in their battle for sustainable growth in the communications and e-commerce markets, concluded delegates at the Telco 2.0 EMEA Brainstorm in November. How should they think differently about their value and where do they need to (re)focus their attention? Full report from the Brainstorm..

40 page PDF format report, summary and except below.

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Executive Summary

There's little time left to take new opportunities

A new framework for thinking about growth opportunities in the communications sector and the value that telcos can add to other industries in the wider ‘digital economy’ was presented by analysts from the Telco 2.0 Initiative and debated by senior strategy execs from the Telecoms, Media and Technology sectors at the 11th Telco 2.0 Executive Brainstorm, EMEA, on 9-10 November 2010, incorporating Digital Entertainment 2.0. The six key telecoms growth opportunity areas are:

The Six Telco 2.0 Opportunity Areas

Delegates concluded that two in particular, B2B Enabling Services and B2B Distribution Platforms, are being particularly underinvested in compared to their potential future value. The big concern was that time is running out for the slow-moving telco industry to take advantage of some key strategic ‘control points’ in the communications and e-commerce value chains, beyond pure data transportation. In a vote participants rated the time remaining for telcos to retain or build a strong position versus internet players and other competitors as follows (see Fig 1 below):

  • Less than three years for ‘Identity and Authentication’ (part of ‘B2B Enabling Services’);
  • Less than two years for ‘Transactions - Advertising & Payments’
  • Less than two years for ‘Address Book and Communications Initiation’
  • Less than two years for ‘Home Devices’
  • Less than one year for the ‘Mobile Device and OS’ (although nearly half thought the opportunity has already gone).

In contrast, other players are not waiting. Telco 2.0’s analysis of Facebook’s ambitions in communications added to the sense of urgency required by telcos.

Doing the core job better

Part of Telco 2.0’s argument discussed at the brainstorm is that, in parallel with ensuring telcos don’t lose strategic control points, there are certain core areas of business in which telcos need to make specific improvements in order to position them effectively to take advantage of new growth opportunities. Two important areas are:

Broadband access, for which it is important for telcos to establish more sophisticated business models, particularly those in which new ‘upstream’ (3rd party) customer revenues are generated;

Being a better digital retailer (part of ‘Enhanced Telco Retail’), in order to maximise loyalty, trust and relevance, not just for the clear business benefits that this provides, but also because many of the new ‘two-sided’ market opportunities require a scale and quality of customer base that this will enable. Participants clearly recognised the value of this, but also saw that much more needs to be done here.

Seeking viable roles beyond connectivity and ‘one-sided’ retail

The Brainstorm examined a number of emerging growth areas in depth, each a subset of one of the Six ‘Telco 2.0’ Opportunity Areas.

  1. Cloud Services 2.0 (part of ‘Infrastructure Services): With technology developing fast and customer case studies of cloud usage becoming compelling, IBM forecasts a public cloud market of $85bn by 2015, growing at around 25% CAGR, with telcos having the opportunity to take anywhere between 30-70% of it. After a presentation by Oracle on potential use cases for telcos, the participants voted that ‘network-as-service’ (public IT cloud but including key telco network capabilities) offered the greatest opportunity for telcos to add value and differentiate. It’s still early days but this is a market that must be grabbed fast. . Telco 2.0 has set up a new Cloud Services Research stream.
  2. Machine-to-Machine 2.0 (M2M – straddling ‘Own Brand OTT’ and ‘B2B enabling Services’): M2M may be coming of age at last, though whether telcos will play a profitable role in the opportunity depends on whether they can deliver a combination of low-cost economics connectivity, added-value enabling solutions, and horizontal platforms that enable developers and ultimately end-users to connect and manage devices easily and innovate on top of. Telco 2.0 has been asked by the industry for more analysis of the opportunities in this space ‘beyond connectivity’.
  3. Personal Data 2.0 (a key underpinning of ‘B2B Enabling Services’ and ‘Enhanced Telco Retail’): 2011 may turn out to be the year that the Personal Information Economy was born, with high-level focus on the enabling commercial and legal structures for building trust networks for personal data being developed and promoted by the World Economic Forum (WEF). While the precise business models and roles of different players are emerging, it is clear that most of the major Information Technology players, including telcos, recognise ‘Personal Data’ as an important market to play in even if, at the same time, it fills them with trepidation. Further Telco 2.0 research and analysis here.
  4. Digital Entertainment 2.0 (cutting across multiple categories, from ‘Enhanced Telco Retail’ to ‘Vertical Industry Solutions’ to ‘B2B Distribution and Enabling Services’): while the online share of the entertainment industry is today relatively small, the impact of online behaviours has not been. The anticipated disruption in the video market is significant. Telcos have a range of latent capabilities that are (theoretically at least) very valuable to the entertainment sector concept. A key starting point for a new level of strategic collaboration between the industries is in the area of “Digital Content Lockers” such as developed by the DECE/UltraViolet Hollywood consortium. Telco 2.0 will be working to catalyse Industry engagement with this in 2011, and looking at the economics of ‘on-demand’ TV and online gaming as part of its Digital Entertainment 2.0 Research programme.
  5. Augmented Reality (part of ‘B2B Enabling Services’): ‘AR’ is a fast growing phenomenon outside the telco sector but relatively neglected within. Telcos could take on a stronger intermediary role, adding value by tracking the end-to-end performance and delivery of services. But more detailed analysis is needed to identify precise roles and market opportunities.

The rest of this report provides detailed analysis of all the brainstorming from the event. STL Partners, the analyst firm behind the Telco 2.0 and Digital Entertainment 2.0 Initiatives, will continue to research these and other related new business model opportunities and provide a forum for high quality debate at our online and physical events in 2011:

 

The following is an excerpt from the body of the report

There are opportunities, but can telcos take them?

  • “The level of dividend payments being taken means the Capital Markets are in effect saying to telcos ‘give us the money before you blow it on something stupid’.” Richard Kramer, Arete Research.
  • “Telcos did have an opportunity in the 6 opportunity areas but have been too slow and will find it difficult to oust others who are now securing valuable positions in the ecosystem.” 49% of Telco 2.0 EMEA Brainstorm Delegates.

Viable opportunities and strategies to innovate and develop new sources of value exist, yet there are also doubts about the telecom’s industry to exploit them in time. At the Brainstorm, Chris Barraclough, MD & Chief Strategist, Telco 2.0, presented 10 of the 17 ‘Principles for Success in a Disrupted Markets’ and outlined the six new Telco 2.0 Opportunity Areas described in the forthcoming ‘Roadmap to New Telco 2.0 Business Models’ Strategy Report (see diagram above).

Overall, despite their concerns on the urgency of action, delegates considered that all of the outlined opportunities had merit, and that some key areas are currently relatively underinvested in compared to their perceived potential. While Enhanced Retail and Infrastructure Services (i.e. enhanced wholesale) were understandably rated most highly, B2B Enabling Services and Distribution Platform showed the biggest gap between potential and investment.

Figure 1 – B2B Enabling Services and Distribution Platform Need Investment

Vote on Key Control PointsSource: Delegate Vote, 11th Telco 2.0 EMEA Brainstorm

How much time do telcos have left?

Figure 2 – Other than “being a pipe”, Telcos have the most time and Opportunity to address Identity & Authentication Capabilities

[Q. What is your opinion of the amount of time that telecoms operators have to either retain OR build a strong position (versus internet or other players) in each of these ‘ecosystem control points'?]

How much Time Left?

Delegates broadly viewed telcos opportunities to hold the control points in the ecosystem in three groups: “the pipe”, which whether “dumb” or “happy” will be the domain of telcos for the foreseeable future; mobile devices and OS which they have already lost; and a middle-range comprising home devices, advertising and payments, address book, and identity and authentication. Of these, telcos are perceived to be in a significantly better position on identity and authentication.

Is there a danger of telcos repeating bad old habits?

  • “All you need to do to make the enablers opportunity go away is wait.” Andrew Budd, Chairman, MEF.

A similar chart to Figure 3 drawn up 5 to 10 years ago would have shown “Location Services” as an equal or better prospect than “Identity & Authentication”. Yet location today no longer registers as an opportunity because of the success of other players finding alternative ways to provide this information. In their eventual efforts to enable location, Telcos were late to the market, disjointed in that they did not offer common solutions across the industry, and overpriced.

It is intriguing to look at two other examples that may reflect this trait.

First, in the case of mobile Apps, operators have now created the Wholesale Applications Community (WAC), which is, at least, a common approach to the market, but which will struggle to establish operator control in this area if the delegate vote and evident strength of the Apple and Android ecosystems is anything to go by However, Telco 2.0 believes that WAC may succeed in enabling a second tier of appstores or segmented “app malls”.

Secondly, Vodafone presented its closed, vertically integrated M2M strategy at the event, which as smart and well-conceived as it is in many ways, still lacks the level of openness that customers will ultimately want from M2M applications.

In the area of Personal Information, Identity, and Authentication, operators do have a chance to do something, and there were suggestions from Vodafone in EMEA, and AT&T in the US, that telcos may act. But will it be enough, and sufficiently aligned and open to create a new role for the industry?

To read the report in full, covering in addition to the above...

  • Facebook is not waiting (full Briefing here)
  • Mobile Broadband: booming, but what is the best business model?
  • Cloud 2.0: Clearing Fog, Sunshine Forecast
  • M2M: A Late Developer?
  • Being a Better Retailer: Two Innovative Consumer Services
  • Personal Information: “The Meaning of PIE”?
  • Digital Entertainment 2.0: Changing Consumer Behaviours and “Digital Lockers”
  • Augmented Reality: telcos as intermediaries

...and including...
  • Figure 1 - The Six Telco 2.0 Opportunity Types
  • Figure 2 – B2B Enabling Services and Distribution Platform Need Investment
  • Figure 3 – Other than “being a pipe”, Telcos have the most time and Opportunity to address Identity & Authentication Capabilities
  • Figure 4 – Facebook’s Communications Ambitions?
  • Figure 5 – Deutsche Telekom’s View on Mobile Broadband Growth
  • Figure 6 – 3D TV ‘Use Case’
  • Figure 7 – IBM’s Cloud Services Forecast, 2010-2015
  • Figure 8 – Oracle’s Seven Steps to Cloud Heaven
  • Figure 9 – EMEA Delegates favoured the ‘Network-as-a-Service’ Opportunity
  • Figure 10 – T-Mobile’s Forecast of European M2M Markets
  • Figure 11 – Vodafone’s Global M2M Platform
  • Figure 12 – The Key Challenge for M2M Growth is to Create a Broad, Open Market
  • Figure 13 – Orange’s Innovative PromoTonos Service
  • Figure 14 – Movistar Argentina: Customer Centric Identity Management (IDM)
  • Figure 15 – How the ‘Two Sided’ Telco Business Model Can Help the Digital Entertainment Industry
  • Figure 16 – What Will Happen to the Global Entertainment Market?
  • Figure 17 – Delegates: Pay TV Will Lose Out (Share of Votes)
  • Figure 18 - “Digital Lockers”: The Way Forward?
  • Figure 19 – Tesco Connect: The UK’s Top Retailer’s Digital Locker
  • Figure 20 – Ericsson: the Impact of Tablets on the Consumption of Personal Entertainment
  • Figure 21 - Telcos can sit at the centre of a new ecosystem without controlling the development of apps
  • Figure 22 - AR connects the things around us with a mass of personal and public information from the Internet

......Members of the Telco 2.0TM Executive Briefing Subscription Service and the Dealing with Disruption Stream can read the Executive Summary and download the full 40 page report in PDF format here. Non-Members, please see here for how to subscribe. Please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

Report Background

This report includes a summary analysis of all the brainstorming and voting from the 11th Telco 2.0 Executive Brainstorm (EMEA), held in London on 9-10 November 2010 with over 150 execs from the Telecoms, Media and Technology sector, and incorporating the 3rd Digital Entertainment 2.0 Executive Brainstorm. It was organised and facilitated by analyst firm STL Partners – founders of the Telco 2.0 and Digital Entertainment 2.0 Initiatives - using their interactive ‘Mindshare’ format.

The aim of the event was to review and debate new business model concepts and current best practice related to the upcoming Telco 2.0 strategy report, ‘From Theory to Practice: the Roadmap to ‘two-sided’ Telecoms Business Models’. This analysis centres around a new framework for thinking about growth opportunities in the communications sector and the value that telcos can add to other industries in the ‘digital economy’. The Executive Brainstorm looked at:

  • Day One: Telco 2.0 Growth Strategies: Disruptive Strategies and Business Models; Net Neutrality and its Impact on new Business Models; Cloud Services: Show Me The Money (and Profits); Sweating the Asset Base to Deliver More Value; and Managing the Co-opetition: Facing up to Facebook.
  • Day Two (am): Digital Entertainment 2.0 - Multi-platform distribution: Online Video - new disruptive strategies and business models; Defining the Next TV Experience; Optimising online content distribution.
  • Day Two (am): Consumer 2.0: Becoming a better Telco retailer; Using Personal Data Outside the Firewall - the emergence of a new asset class; Securing a Piece of the PIE - what role for telcos in the Personal Information Economy.
  • Day Two (am): M2M and Embedded Mobility 2.0: Opportunities, challenges, business models; Adding value to connectivity – Horizontal strategies for service enablement; Overcoming customers' practical issues to creating the ‘internet of things’.
  • Day Two (pm): Digital Entertainment Meets Consumer 2.0 & M2M 2.0: The Connected Home; Augmented Reality and Mobile Apps.

This report is ordered by event session, and includes an analysis overview, a short summary of the objectives of the relevant session and a list of the stimulus speakers. The brainstormed comments, ideas and questions and the votes have been included verbatim, and organised under a colour-coding to make them more digestible.

Many thanks to everyone who contributed to the brainstorm, the output of which will inform our ongoing research programme for the Telco 2.0 (on this site) and Digital Entertainment 2.0 (www.digitalentertainment2.com) initiatives, along with two new programmes for 2011: Mobile Apps 2.0 and Personal Data 2.0.

In particular we would like to thank the event sponsors without whom the event would not have been possible: Platinum - Ericsson; Gold – Aepona, Aito, Aricent, Blyk, IBM, Intel, Nokia Siemens Networks, Oracle and Ubiqisys; and Bronze – Huawei, Juniper, Martin Dawes Systems, Metaswitch and Wipro. And to our collaborators: Analysys Mason, Arete Research and the World Economic Forum.

The next Telco 2.0/Digital Entertainment 2.0 EMEA Brainstorm will be held on the 17-18 May in London. In the meantime, there is a FREE global ‘virtual event’, online on 2-3 February 2011 and the 12th Telco 2.0/Digital Entertainment 2.0 AMERICAS Executive Brainstorm on 5-6 April 2011 in San Francisco (more here).

The ‘Roadmap to New Telco 2.0 Telecoms Business Models’ report will be published in early 2011.