Telcos and GAFA: Dancing with the disruptors

Introduction

Across much of the world, the competing Internet ecosystems led by Amazon, Apple, Facebook and Google have come to dominate the consumer market for digital services. Even though most telcos continue to compete with these players in the service layer, it is now almost a necessity for operators to partner with one or more of these ecosystems in some shape or form.

This report begins by pinpointing the areas where telcos are most likely to partner with these players, drawing on examples as appropriate. In each case, it considers the nature of the partnership and the resulting value to the telco and to the Internet ecosystem. It also considers the longer-term, strategic implications of these partnerships and makes recommendations on how telcos can try to strengthen their negotiating position.

This research builds on the findings of the Digital Partnerships Benchmarking Study conducted between 26th September and 4th November 2016 by STL Partners and sponsored by AsiaInfo. That study involved a survey of 34 operators in Europe and Asia Pacific. It revealed that whereas almost all operators expected to grow their partnerships business in the future, they differed on how they expected to pursue this growth.

Approximately half (46%) of the operator respondents wanted to scale up and partner with a large number of digital players, while the other half (49%) wanted to focus in on a few strategic partnerships.  Those looking to partner with a large number of companies were primarily interested in generating new revenue streams or increasing customer relevance, while many of those who wanted to focus on a small number of partnerships also regarded increasing revenues from the core business as a main objective (see Figure 1).

Figure 1: The business objectives differ somewhat by partnership strategy

Source: Digital Partnerships Benchmarking Study conducted in late 2016 by STL Partners and sponsored by AsiaInfo

Respondents were also asked to rank the assets that an operator can bring to a partnership, both today and in the future. These ranks were converted into a normalized score (see Figure 2): A score of 100% in Figure 2 would indicate that all respondents placed that option in the top rank.

Figure 2: Operators regard their customer base as their biggest asset

Source: Digital Partnerships Benchmarking Study conducted in late 2016 by STL Partners and sponsored by AsiaInfo

Clearly, operators are aware that the size of their customer base is a significant asset, and they are optimistic that it is likely to remain so: it is overall the highest scoring asset both today and in the future.

In the future, the options around customer data (customer profiling, analytics and insights) are given higher scores (they move up the ranks). This suggests that operators believe that they will become better at exploiting their data-centric assets and – most significantly – that they will be able to monetize this in partnerships, and that these data-centric assets will have significant value.

The findings of the study confirm that most telcos believe they can bring significant and valuable assets to partnerships. This report considers how those assets can be used to strike mutually beneficial deals with the major Internet ecosystems. The next chapter explains why telcos and the leading Internet players need to co-operate with each other, despite their competition for consumers’ attention.

Contents:

  • Executive Summary
  • Strategic considerations
  • Delivering bigger, better entertainment
  • Improving customer experience
  • Extending and enhancing connectivity
  • Developing the networks of the future
  • Delivering cloud computing to enterprises
  • Introduction
  • Telcos and lnternet giants need each other
  • Delivering bigger, better entertainment
  • Content delivery networks
  • Bundling content and connectivity
  • Zero-rating content
  • Carrier billing
  • Content promotion
  • Apple and EE in harmony
  • Value exchange and takeaways
  • Improving the customer experience
  • Making mobile data stretch further
  • Off-peak downloads, offline viewing
  • Data plan awareness for apps
  • Fine-grained control for consumers
  • Value exchange and takeaways
  • Extending and enhancing connectivity
  • Subsea cable consortiums
  • Free public Wi-Fi services
  • MVNO Project Fi – branded by Google, enabled by telcos
  • Value exchange and takeaways
  • Developing the networks of the future
  • Software-defined networks: Google and the CORD project
  • Opening up network hardware: Facebook’s Telecom Infra Project
  • Value exchange and takeaways
  • Delivering cloud computing to enterprises
  • Reselling cloud-based apps
  • Secure cloud computing – AWS and AT&T join forces
  • Value exchange and takeaways
  • Conclusions and Recommendations
  • Google is top of mind
  • Whose brand benefits?

Figures:

  • Figure 1: The business objectives differ somewhat by partnership strategy
  • Figure 2: Operators regard their customer base as their biggest asset
  • Figure 3: US Internet giants generate about 40% of mobile traffic in Asia-Pacific
  • Figure 4: Google and Facebook are now major players in mobile in Africa
  • Figure 5: Examples of telco-Internet platform partnerships in entertainment
  • Figure 6: BT Sport uses YouTube to promote its premium content
  • Figure 7: Apple Music appears to have helped EE’s performance
  • Figure 8: Amazon is challenging Apple and Spotify in the global music market
  • Figure 9: Examples of telco-Google co-operation around transparency
  • Figure 10: YouTube Smart Offline could alleviate peak pressure on networks
  • Figure 11: Google’s Triangle app gives consumers fine-grained control over apps
  • Figure 12: Examples of telco-Internet platform partnerships to deliver connectivity
  • Figure 13: Project Fi’s operator partners provide extensive 4G coverage
  • Figure 14: Both T-Mobile US and Sprint need to improve their financial returns
  • Figure 15: Examples of telco-Internet platform partnerships on network innovation
  • Figure 16: AWS has a big lead in the cloud computing market
  • Figure 17: Examples of telco-Internet platform partnerships in enterprise cloud
  • Figure 18: AT&T provides private and secure connectivity to public clouds
  • Figure 19: Amazon and Alphabet lead corporate America in R&D
  • Figure 20: Telcos need to be wary of bolstering already powerful brands
  • Figure 21: Balancing immediate value of partnerships against strategic implications
  • Figure 22: Different telcos should adopt different strategies

Telco digital customer engagement: What makes a winning strategy?

Introduction

Customer experience is at the centre of telcos’ digital transformation efforts

Telecoms is one of many industries that are transitioning towards becoming more digitalised businesses. More specifically within digital transformation, the need to be customer-centric, and improve customer engagement, has been a crucial theme in telco digital transformation efforts. This is exemplified by Orange’s CEO Stèphane Richard who recently claimed that users needed to be “at the core of systems”.

As revenue growth in the industry continues to decline and telecom operators’ core services become commoditised, customer experience remains as one of the few areas operators can differentiate themselves from their competitors and maintain relevance with consumers. This places greater need for operators to make customer engagement a priority.

The way in which telcos engage customers has changed dramatically in recent years through the growth of different channels and touch-points a customer has access to. This is often contributed to the rapid adoption of smartphones and tablets, initiated by the launch of the iPhone in 2007, and the speedy adoption of social media platforms like Facebook (launched 2004) and Twitter (launched in 2006). Customers now expect businesses to be digitally savvy, knowledgeable and “joined-up” in their interactions with them.

There is no shortage of commentators and technology providers extolling the virtues of a more customercentric focus, urging operators adopt an omnichannel approach. By integrating online, call centre and bricks-and-mortar store customer experiences – through omnichannel capabilities – the promise to operators is that they can deliver joined-up customer experiences: simultaneously improving the effectiveness of telecoms marketing by building a ‘single-view’ of the customer, reducing time spent on resolving customer service issues, and preventing data from getting stuck in specific siloes.

But are these investments in technology (and the considerable internal resource implications) really a priority for operators or just another example of technology vendors pushing operators to spend more on expensive capabilities that they will never benefit from? Our survey suggests that those operators who have built omnichannel capabilities are reaping the rewards. However, operators also appreciate that success is not just down to implementing fancy systems: it’s also about what you do with them and having the right skills.

Telcos’ benchmarks come from within and outside the industry

Although most telcos are investing in their efforts to digitise the customer experience, it may not be obvious where they should be concentrating their efforts and what targets they should be aiming for. For this, there is a need to determine what the relevant benchmarks are when it comes to best-practice for digital engagement, how well they stack up and how they should seek to close the gap.

Telcos are looking to learn from outside their industry as customer engagement is a domain that all businesses constantly seek to improve. Digital natives, companies such as Google, Facebook and Netflix that started off as digital businesses and did not have to make a transition from legacy practices, are often leading the way when it comes to offering customers a truly digitized experience. However, for a telco, it may seem like an unrealistic dream to replicate their efforts, therefore telcos often look for best-practice examples from other industries, which are undergoing a digital transformation and still have the burden of legacy services, systems, processes, people and infrastructure. These industries include finance, retail and media.

Nonetheless, when comparing telcos’ digital customer engagement to these industries, many different measures suggest that telcos are lagging behind. When looking at cross-industry Net Promoter Scores (NPS), telecoms operators come out at an average of 11% compared to an average of 50% for retail (which leads all industries). The next worst industry, insurance, has an average score of 23%, just over twice that of telecoms.

These statistics suggest there is room for improvement, but in which specific areas do the most critical gaps exist and how should telcos go about changing this?

So, STL Partners has attempted to answer two questions:

  1. What should telcos be aiming for?
  2. How well are telcos measuring up to their ambitions in digital customer engagement?

To address this, we created an online tool to benchmark telcos across various metrics in three domains related to digital customer engagement: commerce, marketing and sales & service.

The Digital Customer Engagement Benchmarking Study5 took place in two phases. The first phase was focused on commerce and took place over July and August 2016. In the second phase, the scope was expanded to include marketing and sales & service and took place in April and May 2017. In total, 70 respondents from 47 telecoms operators took part in the study.

For the purposes of this study, operators are categorised into 2 ‘peer groups’:

  • Mature Market: Medium-high income per user, predominantly post-pay, developed fixed infrastructure
  • Mobile First: Low-Medium income per user, predominantly pre-pay with limited fixed infrastructure

Figure 1: Respondents by region and peer group

chart on global customer experience survey

Source: STL Partners

Contents:

  • Preface
  • Executive Summary
  • Introduction
  • Characterising operators’ digital customer engagement strategies
  • Commerce: selling more digitally and selling digitally more
  • Telcos’ online channels are still not being used enough by customers and prospects
  • Revenue benefits from online channels are relatively lower
  • Leveraging digital channels to upsell customers is one way to help drive online revenue
  • Data use is the key differentiator for a successful digital commerce approach
  • What is best practice for commerce?
  • Commerce Case Studies
  • Marketing: this time it’s personal
  • A (good) personalised marketing approach is more likely to secure returns…
  • …but most telcos’ marketing still uses traditional customer segmentation
  • What is best practice for marketing?
  • Marketing Case Studies
  • Sales & Service: Delivering the promise
  • Customers of the Omnichannel operator group are most actively engaged on digital channels
  • Online service engagement requires adequate channels and functionality
  • Omnichannel operators add value to customer service by ensuring complete visibility of customers
  • What is best practice for sales & service?
  • Sales & Service Case Study
  • Conclusions

Figures:

  • Figure 1: Respondents by region and peer group
  • Figure 2: Mapping operator digital customer engagement strategies
  • Figure 3: On average, less than 20% of total sales are from online channels
  • Figure 4: Variation between average telco and best performer across online sales
  • Figure 5: ARPU tends to be higher for customers who purchase their core package on offline channels
  • Figure 6: Mature Market operators have higher online attachment rates than Mobile First
  • Figure 7: Most operators are offering at least one online channel for upgrades
  • Figure 8: Omnichannel operators out-perform in digital commerce
  • Figure 9: Our research shows a link between the levels of personalised marketing and online marketing conversion rate
  • Figure 10: Most operators are not using personalised marketing techniques
  • Figure 11: On average, most customer interactions are not contextual
  • Figure 12: Online marketing conversion rates are at 31% across operators
  • Figure 13: A minority of purchases are being scaled up
  • Figure 14: Omnichannel operators excel in app-based customer engagementrst
  • Figure 15: Omnichannel operators are ahead in the number of channels a customer can use to raise a ticket
  • Figure 16: Omnichannel operators excel in the functionality of their channel offerings
  • Figure 17: Omnichannel operators lead converged billing capabilities
  • Figure 18: Omnichannel operators are on average twice as likely to have complete and partial visibility of customers compared to Digital Nascent operators

Triple-Play in the USA: Infrastructure Pays Off

Introduction

In this note, we compare the recent performance of three US fixed operators who have adopted contrasting strategies and technology choices, AT&T, Verizon, and Comcast. We specifically focus on their NGA (Next-Generation Access) triple-play products, for the excellent reason that they themselves focus on these to the extent of increasingly abandoning the subscriber base outside their footprints. We characterise these strategies, attempt to estimate typical subscriber bundles, discuss their future options, and review the situation in the light of a “Deep Value” framework.

A Case Study in Deep Value: The Lessons from Apple and Samsung

Deep value strategies concentrate on developing assets that will be difficult for any plausible competitor to replicate, in as many layers of the value chain as possible. A current example is the way Apple and Samsung – rather than Nokia, HTC, or even Google – came to dominate the smartphone market.

It is now well known that Apple, despite its image as a design-focused company whose products are put together by outsourcers, has invested heavily in manufacturing throughout the iOS era. Although the first generation iPhone was largely assembled from proprietary parts, in many ways it should be considered as a large-scale pilot project. Starting with the iPhone 3GS, the proportion of Apple’s own content in the devices rose sharply, thanks to the acquisition of PA Semiconductor, but also to heavy investment in the supply chain.

Not only did Apple design and pilot-produce many of the components it wanted, it bought them from suppliers in advance to lock up the supply. It also bought machine tools the suppliers would need, often long in advance to lock up the supply. But this wasn’t just about a tactical effort to deny componentry to its competitors. It was also a strategic effort to create manufacturing capacity.

In pre-paying for large quantities of components, Apple provides its suppliers with the capital they need to build new facilities. In pre-paying for the machine tools that will go in them, they finance the machine tool manufacturers and enjoy a say in their development plans, thus ensuring the availability of the right machinery. They even invent tools themselves and then get them manufactured for the future use of their suppliers.

Samsung is of course both Apple’s biggest competitor and its biggest supplier. It combines these roles precisely because it is a huge manufacturer of electronic components. Concentrating on its manufacturing supply chain both enables it to produce excellent hardware, and also to hedge the success or failure of the devices by selling componentry to the competition. As with Apple, doing this is very expensive and demands skills that are both in short supply, and sometimes also hard to define. Much of the deep value embedded in Apple and Samsung’s supply chains will be the tacit knowledge gained from learning by doing that is now concentrated in their people.

The key insight for both companies is that industrial and user-experience design is highly replicable, and patent protection is relatively weak. The same is true of software. Apple had a deeply traumatic experience with the famous Look and Feel lawsuit against Microsoft, and some people have suggested that the supply-chain strategy was deliberately intended to prevent something similar happening again.

Certainly, the shift to this strategy coincides with the launch of Android, which Steve Jobs at least perceived as a “stolen product”. Arguably, Jobs repeated Apple’s response to Microsoft Windows, suing everyone in sight, with about as much success, whereas Tim Cook in his role as the hardware engineering and then supply-chain chief adopted a new strategy, developing an industrial capability that would be very hard to replicate, by design.

Three Operators, Three Strategies

AT&T

The biggest issue any fixed operator has faced since the great challenges of privatisation, divestment, and deregulation in the 1980s is that of managing the transition from a business that basically provides voice on a copper access network to one that basically provides Internet service on a co-ax, fibre, or possibly wireless access network. This, at least, has been clear for many years.

AT&T is the original telco – at least, AT&T likes to be seen that way, as shown by their decision to reclaim the iconic NYSE ticker symbol “T”. That obscures, however, how much has changed since the divestment and the extremely expensive process of mergers and acquisitions that patched the current version of the company together. The bit examined here is the AT&T Home Solutions division, which owns the fixed-line ex-incumbent business, also known as the merged BellSouth and SBC businesses.

AT&T, like all the world’s incumbents, deployed ADSL at the turn of the 2000s, thus getting into the ISP business. Unlike most world incumbents, in 2005 it got a huge regulatory boost in the form of the Martin FCC’s Comcast decision, which declared that broadband Internet service was not a telecommunications service for regulatory purposes. This permitted US fixed operators to take back the Internet business they had been losing to independent ISPs. As such, they were able to cope with the transition while concentrating on the big-glamour areas of M&A and wireless.

As the 2000s advanced, it became obvious that AT&T needed to look at the next move beyond DSL service. The option taken was what became U-Verse, a triple-play product which consists of:

  • Either ADSL, ADSL2+, or VDSL, depending on copper run length and line quality
  • Plus IPTV
  • And traditional telephony carried over IP.

This represents a minimal approach to the transition – the network upgrade requires new equipment in the local exchanges, or Central Offices in US terms, and in street cabinets, but it does not require the replacement of the access link, nor any trenching.

This minimisation of capital investment is especially important, as it was also decided that U-Verse would not deploy into areas where the copper might need investment to carry it. These networks would eventually, it was hoped, be either sold or closed and replaced by wireless service. U-Verse was therefore, for AT&T, in part a means of disposing of regulatory requirements.

It was also important that the system closely coupled the regulated domain of voice with the unregulated, or at least only potentially regulated, domain of Internet service and the either unregulated or differently regulated domain of content. In many ways, U-Verse can be seen as a content first strategy. It’s TV that is expected to be the primary replacement for the dwindling fixed voice revenues. Figure 1 shows the importance of content to AT&T vividly.

Figure 1: U-Verse TV sales account for the largest chunk of Telco 2.0 revenue at AT&T, although M2M is growing fast

Telco 2 UVerse TV sales account for the largest chunk of Telco 2 revenue at ATandT although M2M is growing fast.png

Source: Telco 2.0 Transformation Index

This sounds like one of the telecoms-as-media strategies of the late 1990s. However, it should be clearly distinguished from, say, BT’s drive to acquire exclusive sports content and to build up a brand identity as a “channel”. U-Verse does not market itself as a “TV channel” and does not buy exclusive content – rather, it is a channel in the literal sense, a distributor through which TV is sold. We will see why in the next section.

The US TV Market

It is well worth remembering that TV is a deeply national industry. Steve Jobs famously described it as “balkanised” and as a result didn’t want to take part. Most metrics vary dramatically across national borders, as do qualitative observations of structure. (Some countries have a big public sector broadcaster, like the BBC or indeed Al-Jazeera, to give a basic example.) Countries with low pay-TV penetration can be seen as ones that offer greater opportunities, it being usually easier to expand the customer base than to win share from the competition (a “blue ocean” versus a “red sea” strategy).

However, it is also true that pay-TV in general is an easier sell in a market where most TV viewers already pay for TV. It is very hard to convince people to pay for a product they can obtain free.

In the US, there is a long-standing culture of pay-TV, originally with cable operators and more recently with satellite (DISH and DirecTV), IPTV or telco-delivered TV (AT&T U-Verse and Verizon FiOS), and subscription OTT (Netflix and Hulu). It is also a market characterised by heavy TV usage (an average household has 2.8 TVs). Out of the 114.2 million homes (96.7% of all homes) receiving TV, according to Nielsen, there are some 97 million receiving pay-TV via cable, satellite, or IPTV, a penetration rate of 85%. This is the largest and richest pay-TV market in the world.

In this sense, it ought to be a good prospect for TV in general, with the caveat that a “Sky Sports” or “BT Sport” strategy based on content exclusive to a distributor is unlikely to work. This is because typically, US TV content is sold relatively openly in the wholesale market, and in many cases, there are regulatory requirements that it must be provided to any distributor (TV affiliate, cable operator, or telco) that asks for it, and even that distributors must carry certain channels.

Rightsholders have backed a strategy based on distribution over one based on exclusivity, on the principle that the customer should be given as many opportunities as possible to buy the content. This also serves the interests of advertisers, who by definition want access to as many consumers as possible. Hollywood has always aimed to open new releases on as many cinema screens as possible, and it is the movie industry’s skills, traditions, and prejudices that shaped this market.

As a result, it is relatively easy for distributors to acquire content, but difficult for them to generate differentiation by monopolising exclusive content. In this model, differentiation tends to accrue to rightsholders, not distributors. For example, although HBO maintains the status of being a premium provider of content, consumers can buy it from any of AT&T, Verizon, Comcast, any other cable operator, satellite, or direct from HBO via an OTT option.

However, pay-TV penetration is high enough that any new entrant (such as the two telcos) is committed to winning share from other providers, the hard way. It is worth pointing out that the US satellite operators DISH and DirecTV concentrated on rural customers who aren’t served by the cable MSOs. At the time, their TV needs weren’t served by the telcos either. As such, they were essentially greenfield deployments, the first pay-TV propositions in their markets.

The biggest change in US TV in recent times has been the emergence of major new distributors, the two RBOCs and a range of Web-based over-the-top independents. Figure 2 summarises the situation going into 2013.

Figure 2: OTT video providers beat telcos, cablecos, and satellite for subscriber growth, at scale

OTT video providers beat telcos cablecos and satellite for subscriber growth at scale

Source: Telco 2.0 Transformation Index

The two biggest classes of distributors saw either a marginal loss of subscribers (the cablecos) or a marginal gain (satellite). The two groups of (relatively) new entrants, as you’d expect, saw much more growth. However, the OTT players are both bigger and much faster growing than the two telco players. It is worth pointing out that this mostly represents additional TV consumption, typically, people who already buy pay-TV adding a Netflix subscription. “Cord cutting” – replacing a primary TV subscription entirely – remains rare. In some ways, U-Verse can be seen as an effort to do something similar, upselling content to existing subscribers.

Competing for the Whole Bundle – Comcast and the Cable Industry

So how is this option doing? The following chart, Figure 3, shows that in terms of overall service ARPU, AT&T’s fixed strategy is delivering inferior results than its main competitors.

Figure 3: Cable operators lead the way on ARPU. Verizon, with FiOS, is keeping up

Cable operators lead the way on ARPU. Verizon, with FiOS, is keeping up

Source: Telco 2.0 Transformation Index

The interesting point here is that Time Warner Cable is doing less well than some of its cable industry peers. Comcast, the biggest, claims a $159 monthly ARPU for triple-play customers, and it probably has a higher density of triple-players than the telcos. More representatively, they also quote a figure of $134 monthly average revenue per customer relationship, including single- and double-play customers. We have used this figure throughout this note. TWC, in general, is more content-focused and less broadband-focused than Comcast, having taken much longer to roll out DOCSIS 3.0. But is that important? After all, aren’t cable operators all about TV? Figure 4 shows clearly that broadband and voice are now just as important to cable operators as they are to telcos. The distinction is increasingly just a historical quirk.

Figure 4: Non-video revenues – i.e. Internet service and voice – are the driver of growth for US cable operators

Non video revenues ie Internet service and voice are the driver of growth for US cable operatorsSource: NCTA data, STL Partners

As we have seen, TV in the USA is not a differentiator because everyone’s got it. Further, it’s a product that doesn’t bring differentiation but does bring costs, as the rightsholders exact their share of the selling price. Broadband and voice are different – they are, in a sense, products the operator makes in-house. Most have to buy the tools (except Free.fr which has developed its own), but in any case the operator has to do that to carry the TV.

The differential growth rates in Figure 4 represent a substantial change in the ISP industry. Traditionally, the Internet engineering community tended to look down on cable operators as glorified TV distribution systems. This is no longer the case.

In the late 2000s, cable operators concentrated on improving their speeds and increasing their capacity. They also pressed their vendors and standardisation forums to practice continuous improvement, creating a regular upgrade cycle for DOCSIS firmware and silicon that lets them stay one (or more) jumps ahead of the DSL industry. Some of them also invested in their core IP networking and in providing a deeper and richer variety of connectivity products for SMB, enterprise, and wholesale customers.

Comcast is the classic example of this. It is a major supplier of mobile backhaul, high-speed Internet service (and also VoIP) for small businesses, and a major actor in the Internet peering ecosystem. An important metric of this change is that since 2009, it has transitioned from being a downlink-heavy eyeball network to being a balanced peer that serves about as much traffic outbound as it receives inbound.

The key insight here is that, especially in an environment like the US where xDSL unbundling isn’t available, if you win a customer for broadband, you generally also get the whole bundle. TV is a valuable bonus, but it’s not differentiating enough to win the whole of the subscriber’s fixed telecoms spend – or to retain it, in the presence of competitors with their own infrastructure. It’s also of relatively little interest to business customers, who tend to be high-value customers.

 

  • Executive Summary
  • Introduction
  • A Case Study in Deep Value: The Lessons from Apple and Samsung
  • Three Operators, Three Strategies
  • AT&T
  • The US TV Market
  • Competing for the Whole Bundle – Comcast and the Cable Industry
  • Competing for the Whole Bundle II: Verizon
  • Scoring the three strategies – who’s winning the whole bundles?
  • SMBs and the role of voice
  • Looking ahead
  • Planning for a Future: What’s Up Cable’s Sleeve?
  • Conclusions

 

  • Figure 1: U-Verse TV sales account for the largest chunk of Telco 2.0 revenue at AT&T, although M2M is growing fast
  • Figure 2: OTT video providers beat telcos, cablecos, and satellite for subscriber growth, at scale
  • Figure 3: Cable operators lead the way on ARPU. Verizon, with FiOS, is keeping up
  • Figure 4: Non-video revenues – i.e. Internet service and voice – are the driver of growth for US cable operators
  • Figure 5: Comcast has the best pricing per megabit at typical service levels
  • Figure 6: Verizon is ahead, but only marginally, on uplink pricing per megabit
  • Figure 7: FCC data shows that it’s the cablecos, and FiOS, who under-promise and over-deliver when it comes to broadband
  • Figure 7: Speed sells at Verizon
  • Figure 8: Comcast and Verizon at parity on price per megabit
  • Figure 9: Typical bundles for three operators. Verizon FiOS leads the way
  • Figure 12: The impact of learning by doing on FTTH deployment costs during the peak roll-out phase

Full Article: Triple play, go away

We were running through four case studies from our new Broadband Business Models 2.0 Report looking at how the content aggregation and distribution businesses interact with one another. The four products we picked on are Joost, Iliad’s Free service, Sky Anytime and BT Vision, but of course we’ve been following many others. We’re seeing some common themes, plus some ideas of our own, that we thought we’d share with you:

  • You have to match the right content to the right distribution system. Get it wrong, for example by picking mass market content when you should be deep in the long tail, and you’ll fail. Get it right, for example by giving user generated content equal footing in the distribution system, and you’ll be rewarded.
  • Two-sided business models (with payment from users as well as merchants) generally beat one-sided models.
  • Scale matters in both content aggregation and distribution. Sponsors and advertisers demand it, and distribution efficiency needs it. Few businesses have both. Telcos trying to build both capabiliies as a “triple play? will mostly fail.
  • Indeed, always carry a wet fish with you. Whenever you hear someone say “triple play? (or “Quad? or “Quin? Play), slap them across the face with it until they wake up. It’s nonsense. A dream. If anything it’s “multiplex play? — how do I use my customer relationship and distribution assets to market and deliver content from relevant aggregators to targeted users? For example, how does an ISP serving the small business market offer multicast video from a business newscast partner?
  • The triple play is a vestige of what Umair Haque calls the “massconomy? — mass production of a standardised product, versus the “edgeconomy? where everything is personalised and also understands the user is a critical producer as well as consumer of value. Iliad’s TV Perso is a classic example here of going beyond bundling, by allowing users to create their own TV channels, including their own content.
  • Telcos have a cultural handicap: they’re obsessed with billable events. Consumers want bundles. The marketing skill is how to build and break bundles.
  • Speaking of bundling, consumers want to buy product and delivery together as a package (“FREE delivery!?). They also dislike endless small charges for calls and content — there’s a large “certainty premium? that they pay for bundles. However, the classical consumer surplus analysis of bundling only applies when you group dissimilar but complementary goods (e.g. TV and phone service). And it only works to reclaim some market power for yourself. If your basic product isn’t very good, because you’re stuck in a “massconomy? mindset, it doesn’t help.
  • That means operators need to open up their assets (network, logistics, customer data) to upstream partners to help them bundle the retail proposition.
  • Most vendors have nothing like the offering that the operators need. Nowhere near. Sorry.
  • Content still isn’t king. If you really want to make money, go re-invent the freephone number business.