In pursuit of agility, efficiency, new revenue sources and closer customer relationships, enterprises are turning to mobility to transform the way employees work with engaging mobile apps that harness device-specific functions and capabilities. These apps generally need to connect to and exchange data with back-office systems, many of which pre-date the mobile era. As a result, organisations are looking to partners to provide the tools, technologies and skills to customise and develop apps, do the heavy lifting of deployment and lifecycle management, and accelerate business value. STL Partners estimates the value of this opportunity to be around $50 billion worldwide.
As enterprises reduce spend on traditional telecom services, telcos have a timely opening to take an enterprise mobility proposition to market. However, to date, deployments have been niche and opportunistic rather than part of a long-term strategy. STL Partners has identified a four-step structured approach that telcos can embark on today, and gain competence and confidence as they move up the enterprise mobility stack to higher value offerings. The four levels of evolution involve:
Level 1 – mobilising their own operations and internal processes
Level 2 – offering a managed environment to enterprises for their apps, whether on premise or in the cloud
Level 3 – providing hosted mobility together with off-the-shelf enterprise apps, with the option to add “last mile” customisation to the enterprise’s specific requirements and provide an enterprise app store
Level 4 – providing hosted mobility and developing bespoke, highly differentiated apps that solve customers’ unique business challenges
However, building out these capabilities will require substantial commitment and investment – not only in platforms and tools but also in people, via a transfusion of talent from related industries.
The purpose of this paper is to stimulate telcos’ thinking around the development of a structured, short-term approach to enterprise mobility opportunities that can be transitioned to a more sustainable, higher-yield strategy.
Having highlighted the stark choices available, STL Partners are inviting telcos to participate in a research study which will delve deeper into telcos’ appetite for, and the practical considerations of, establishing a foothold in the enterprise mobility market. Among the big questions for exploration will be:
Why are telcos arriving relatively late to the enterprise mobility party?
What do they need to keep pace with enterprise mobility trends?
What successes have telcos achieved to date – but at what cost and effort, and what could be done differently or better to create a repeatable framework and reusable approach?
What are the shortest, most effective routes into specific markets and segments and what use cases should telcos be targeting?
What are the barriers to success in the app market and how can they be overcome?
Where, along the four-stage evolution, do telcos want to end up and why?
What can and should mobility vendors be doing to support telcos’ efforts to commercialise their enterprise mobility propositions?
Our forthcoming paper will reveal the findings and outline the “recipe” for advancing through each of the four levels of enterprise mobility maturity.
Joining the enterprise mobility revolution
The enterprise opportunity
The telco opportunity
Level 1 – ‘Drink your own Champagne’
Level 2 – Offer a managed environment for enterprise apps
Level 3 – Provide hosted mobility plus off-the-shelf apps
Level 4 – Hosted mobility plus development of proprietary enterprise apps
Barriers and inhibitors
About STL Partners
Figure 1 – The enterprise mobility framework
Figure 2 – The four levels of enterprise mobility evolution
Figure 3 – Key opportunities for internal applications of mobility
Figure 4 – Example Use Cases of Off-the-shelf enterprise apps
Network Functions Virtualisation (NFV) is an ominous sounding term, but on examination relatively easy to understand what it is and why it is needed.
If you run a network whether as an enterprise customer or as a service provider you will end up a stack of dedicated hardware appliances performing a variety of functions needed to make the network work or to optimise its performance. Boxes like Routers, Application Load Balancers, Session Border Controllers (SBC), Network Address Translation (NAT), Deep Packet Inspection (DPI) and Firewalls to pick just a few. Each one of these hardware appliances needs space, power, cooling, configuration, backup, capital investment, replacement as they become obsolete and people who can deploy and manage them leading to on-going capex and opex. And with a few exceptions, each performs a single purpose, so a firewall is always a firewall or an SBC is always an SBC and neither can perform the function of the other.
Contrast this model with the virtualised server or cloud computing world where Virtual Machines run on standard PC/Server hardware, where you can add more compute power/storage on an elastic basis should you need it and where network cards are only required when you connect one physical device to another.
What problems does NFV solve?
NFV seeks to solve the problems of dedicated hardware by deploying the network functions on a virtualised PC/server environment. NFV started as a special interest group running under the auspices of the European Telecommunications Standards Institute (ETSI) by 7 of the world’s largest telecoms operators and has now been joined by additional telecoms companies, equipment vendors and a variety of technology providers.
While NFV can replace many dedicated hardware devices with a virtualised software platform, it is yet to be seen if this approach can deliver the sustained performance and low latency that is currently delivered by some specialised hardware appliances such as load balancing, real time encryption or deep packet inspection.
Figure 8 shows ETSI’s vision of NFV.
Figure 8 – ETSI’s vision for Network Functions Virtualisation
Network Functions Virtualisation
What is Network Functions Virtualisation?
What problems does NFV solve?
How does NFV relate to Software Defined Networking (SDN)?
Relative benefits of NFV and SDN
STL Partners and the Telco 2.0™ Initiative
Figure 8 – ETSI’s vision for Network Functions Virtualisation
Figure 9 – Network Functions Virtualised and managed by SDN
Figure 10 – Network Functions Virtualisation relationship with SDN
Cloud services are emerging as a key strategic imperative for Telcos as revenues from traditional services such as voice, messaging and data come under attack from Over The Top Players, regulators and other Telcos. A majority of these new products are delivered from the Cloud on a “pay for consumption” basis and many business customers are increasingly looking to migrate from traditional in house IT systems to Cloud-based or virtualized services to reduce costs, increase agility and decrease deployment times. Gartner recently estimated that the Cloud services market would be worth over $200 billion by 2016, roughly double the value of 2012 and with a CAGR of around 17% whereas traditional IT products and services will see just 3% growth.
It is clear that some Telcos have gained a greater understanding of the Cloud market, and are acting on that understanding, offering increasingly rich Cloud-based products and services, paving the way for Cloud 2.0. But for most Telcos, Cloud services remain secondary to their core business of voice and data delivery. Telcos are wrestling with issues of reduced margin on Cloud and how to stay relevant to their business customers.
This report looks at the development of the Cloud market providing clarity around the different types of cloud products and the impact that they have on business users. Cloud value propositions are examined along with criticisms of cloud products and services. We show that the current risks for Cloud customers represent an opportunity for Telcos and Cloud vendors because….
The report also looks at the development of Cloud 2.0 – a second generation or a more ‘intelligent’ evolution of Cloud products and services. Cloud 2.0 offers key additional benefits/capabilities to consumers, vendors, businesses and Telco/Service providers. These can be typified by cost reductions in the delivery and consumption of cloud services through working with scale players to provide basic compute services, ease of acquisition and most importantly the ability to deliver “mash-up” products and services by using API’s to provide integration between cloud services and products and Telco/service provider products such as Bandwidth, Voice, Management, Support and Billing. Cloud 2.0 is gaining rapid momentum and we show how there is still time for Telcos to play a key role in Cloud 2.0.
Who should read this report?
The report is a ‘must-have’ for all strategy decision makers, Cloud specialists and influencers across the TMT (Telecoms, Media and Technology) sector; in particular, CxOs, strategists, technologists, marketers, product managers, and legal and regulatory leaders in telecoms operators, vendors, consultants, and analyst companies. It will also be invaluable to those managing or considering medium to long-term investment specifically in Telco Cloud services, but also more broadly those involved within telecoms and adjacent industries, and to regulators and legislators.
What is Cloud?
What is the Cloud Value Proposition?
Types of Cloud
Key criticisms of the Cloud
What is ‘Cloud 2.0’ and why does it matter?
Enterprise vs Consumer cloud, Fit with Telco 2.0 strategies
Market Structure & Opportunity
What is the shape and size of the market (revenues and profit)?
Total size, definitions of SaaS, PaaS, IaaS, VPC + forecasts
Advantages and limitations of XaaS definitions
What are the key customer segments and their needs?
SMBs vs Enterprise
Early adopters vs mass adopters
What is the opportunity for Telcos (market size and revenues)?
Share forecasts / ranges for Telcos
What are the most relevant cloud services for Telcos?
What are the key barriers?
Overall and by segment
What is the competitive landscape and who are the key players in Cloud Services?
Detailed competitor analysis, groupings by type and strategy Strategy review: Analysis of 6-10 key players, covering
Objectives, strategy, areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach
Key strategies of other players
Role of the network / operators to Vendor/partner strategies
Which strategies are Telcos adopting and what else could they do
Review of Telco attitudes and approaches based on following analysis
Grouping of Telcos by approach (if valid)
Which are the leading Telcos and what are they doing?
Case studies on 6-10 leading Telcos, covering:
Objectives, strategy, areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach
Outlines of 10 additional Telco strategies
What relationships should Telcos establish with other ecosystem players?
Summary: In this extract from our forthcoming report ‘Cloud 2.0: Telco Strategies in the Cloud’ we outline the key components of Telstra, Singtel and China Mobile’s cloud strategies, and how they compare to the major ‘Big Technology’ players (such as Microsoft, VMWare, IBM, HP, etc.) and ‘Web Giants’ such as Google and Amazon. (November 2012, Executive Briefing Service, Cloud & Enterprise ICT Stream.)
Below is an extract from this 14 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here. Non-members can subscribe here or other enquiries, please email email@example.com / call +44 (0) 207 247 5003.
We’ll also be discussing our findings at the New Digital Economics Brainstorms in Singapore (3-5 December, 2012).
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This is an edited extract of Cloud 2.0: Telco Strategies in the Cloud, a new Telco 2.0 Strategy Report to be published next week. The report examines the evolution of cloud services; the current opportunities for vendors and Telcos in the Cloud market, plus a penetrating analysis on the positioning Telcos need to adopt in order to take advantage of the global $200Bn Cloud services market opportunity.
The report shows how CSP’s can create sustainable differentiated positions in Enterprise Cloud. It contains a concise and comprehensive analysis of key vendor and telco strategies, market forecasts (including our own for both the market and telcos), and key technologies.
Led by Robert Brace (formerly Global Head of Cloud Services for Vodafone), it leverages the knowledge and experience of Telco 2.0 analyst team, senior global brainstorm participants, and targeted industry research and interviews. Robert will also be presenting at Digital Asia, 4-5 Dec, Singapore 2012.
In the full report, we reviewed both telcos and technology companies using a list of 30 criteria organised in six groups (Market, Vision, Finance, Proposition, Value Network, and Technology). We aimed to cover their objectives, strategy, market areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach, and technology choices.
We based our analysis on a combination of desk research, expert interviews, and output from our Executive Brainstorms.
Among the leading cloud technology companies we identify two groups, which we characterise as “Big Tech” and the “Web Giants”. The first of these are the traditional enterprise IT vendors, while the second are the players originating in the consumer web 2.0 space (hence the name).
Big Tech: Microsoft (Azure), Google (Dev & Enterprise), VMWare, Parallels, Rackspace, HP, IBM.
Web Giants: Microsoft (Office 365), Amazon, Google (Apps & Consumer), Salesforce, Akamai.
In the report and our analyses below, we use averages for each of these groups to give a key comparator for telco strategies. The full strategy report contains individual analyses for each of these companies and the following telcos: AT&T, Orange, Telefonica, Deutsche Telekom, Vodafone, Verizon, China Telecom, SFR, Belgacom, Elisa, Telenor, Telstra, BT, Cable and Wireless.
The ‘heatmap’ table below shows the summary results of a 4-box scoring against our key criteria for the four APAC telcos enterprise cloud product intentions (i.e. what they intend to do in the market), where 1 (light blue) is weakest, 4 (bright red) stronger.
Figure 1: Cloud ‘heatmap’ for selected APAC telcos
Source: STL Partners / Telco 2.0
In the full report are similar tables and comparisons for capabilities and used these results to compare telco to vendor strategies and telco to telco strategies where they compete in the same markets.
In this briefing we summarise results for Telstra, Singtel, China Mobile, and China Telecom.
Telstra – building regional leadership
Operating in the somewhat special circumstances of Australia, Telstra is pursuing both an SMB SaaS strategy (typical of mobile operators) and an enterprise IaaS strategy (see Figure 2). Under the first, it resells a suite of business applications centred on Microsoft Office 365, for which it has exclusivity in Australia.
Under the second, it is trying to develop a cloud computing business out of its managed hosting business. VMWare is the main technology provider, with some Microsoft Hyper-V. Unlike many telcos, Telstra benefits from the fact that the major IaaS players are only just beginning to develop data centres in Australia, and therefore cloud applications hosted with Amazon etc. are subject to a considerable latency penalty.
Figure 2: Telstra: A local leader
Source: STL Partners / Telco 2.0
However, data sovereignty concerns in Australia will force other cloud providers to develop at least some presence if they wish to address a variety of important markets (finance, government, and perhaps even mining), and this will eventually bring greater competition.
So far, Telstra has a web portal for the reseller SaaS products, and relies on a mixture of its direct sales force and a partnership with Accenture as a channel for IaaS.
Figure 3: Telstra benefits from geography
Source: STL Partners / Telco 2.0
To read the note in full, including the following analysis…
Telstra – building regional leadership
SingTel – aiming to be a regional hub
China Mobile – the Great Cloud?
China Telecom – making a start
…and the following figures…
Figure 1: Cloud ‘heatmap’ for selected APAC telcos
Figure 2: Telstra: A local leader
Figure 3: Telstra benefits from geography
Figure 4: SingTel’s strategy is typical, but well executed
Figure 5: China Mobile: A less average telco
Figure 6: China Mobile has a distinctly different technology strategy
Figure 7: China Mobile has some key differentiators (“spikes”) versus its rivals
Figure 8: Comparing the APAC Giants
Figure 9: Cluster analysis: Telco operators
…Members of the Telco 2.0 Executive Briefing Subscription Service and the Cloud and Enterprise ICT Stream can download the full 14 page report in PDF format here. Non-Members, please subscribe here or email firstname.lastname@example.org / call +44 (0) 207 247 5003.
Technologies and industry terms referenced: strategy, cloud, business model, APAC, Singtel, Telstra, China Mobile, China Telecom, VMWare, Amazon, Google, IBM, HP.
The Cloud 2.0 Programme
This research report is a part of the ‘Cloud 2.0’ programme. The report was independently commissioned, written, edited and produced by STL Partners.
The Cloud 2.0 programme is a new initiative that brings together STL Partners’ research and senior thought-leaders and decision makers in the fast evolving Cloud ecosystem to develop new propositions and new partnerships. We’d like to thank the sponsors of the programme listed below for their support. To find out more or to join the Cloud 2.0 programme, please email email@example.com or call +44 (0) 207 247 5003.
Summary: The fight for the Cloud Services market is about to move into new segments and territories. In the build up to the launch of our new strategy report, ‘Telco strategies in the Cloud’, we review perspectives on this shared at the 2012 EMEA and Silicon Valley Executive Brainstorms by strategists from major telcos and tech players, including: Orange, Telefonica, Verizon, Vodafone, Amazon, Bain, Cisco, and Ericsson (September 2012, , Executive Briefing Service, Cloud & Enterprise ICT Stream).
Below is an extract from this 33 page Telco 2.0 Briefing Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here. Non-members can subscribe here and for this and other enquiries, please email firstname.lastname@example.org / call +44 (0) 207 247 5003.
As part of the New Digital Economics Executive Brainstorm series, future strategies in Cloud Services were explored at the New Digital Economics Silicon Valley event at the Marriott Hotel, San Francisco, on the 27th March, 2012, and the second EMEA Cloud 2.0 event at the Grange St. Pauls Hotel on the 13th June 2012.
At the events, over 200 specially-invited senior executives from across the communications, media, retail, finance and technology sectors looked at how to make money from cloud services and the role and strategies of telcos in this industry, using a widely acclaimed interactive format called ‘Mindshare’.
This briefing summarises key points, participant votes, and our high-level take-outs from across the events, and focuses on the common theme that the cloud market is evolving to address new customers, and the consequence of this change on strategy and implementation. We are also publishing a comprehensive report on Cloud 2.0: Telco Strategies in the Cloud.
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The end of the beginning
The first phase of enterprise cloud services has been dominated by the ‘big tech’ and web players like Amazon, Google, and Microsoft, who have developed highly sophisticated cloud operations at enormous scale. The customers in this first round are the classic ‘early adopters’ of enterprise ICT – players with a high proportion of IT genes in their corporate DNA such as Netflix, NASA, Silicon Valley start ups, some of the world’s largest industrial and marketing companies, and the IT industry itself. There is little doubt that these leading customers and major suppliers will retain their leading edge status in the market.
The next phase of cloud market development is the move into new segments in the broader market. Participants at the EMEA brainstorm thought that a combination of new customers and new propositions would drive the most growth in the next 3 years.
These new segments comprise both industries and companies outside the early adopters in developed markets, and companies in new territories in emerging and developing markets. These customers are typically less technology oriented, more focused on business requirements, and need a combination of de-mystification of cloud and support to develop and run such systems.
Closer to the customer
There are opportunities for telcos in this evolving landscape. While the major players’ scale will be hard to beat, there are opportunities in the new segments in being ‘closer to the customer’. This involves telcos leveraging potential advantages of:
existing customer relationships, existing enterprise IT assets, and channels to markets (where they exist);
geographical proximity, where telcos can build, locate and connect more directly to overcome data sovereignty and latency issues.
Offering unique, differentiated services
Telcos should also be able to leverage existing assets and capabilities through APIs in the cloud to create distinctive offerings to enterprise and SME customers:
Network assets will enable better management of cloud services by allowing greater control of the network components;
Data assets will enable a wider range of potential applications for cloud services that use telco data (such as identification services);
And communications assets (such as APIs to voice and messaging) will allow communications services to be built in to cloud applications.
Next steps for telcos
Telcos need to move fast to leverage their existing relationships with customers both large and small and optimise their cloud offerings in line with new trends in the enterprise ICT market, such as bring-your-own-device (BYOD).
Customers are increasingly looking to outsource business processes to cut costs, and telcos are well-placed to take advantage of this opportunity.
Telcos need to continue to partner with independent software vendors, in order to build new products and services. Telcos should also focus on tight integration between their core services and cloud services or cloud service providers (either delivered by themselves or by third parties.) During the events, we saw examples from Vodafone, Verizon and Orange amongst others.
Telcos should also look at the opportunity to act as cloud service brokers. For example, delivering a mash up of Google Apps, Workday and other services that are tightly integrated with telco products, such as billing, support, voice and data services. The telco could ensure that the applications work well together and deliver a fully supported, managed and billed suite of products.
Identity management and security also came through as strong themes and there is a natural role for telcos to play here. Telcos already have a trusted billing relationship and hold personal customer information. Extending this capability to offer pre-population of forms, acting as an authentication broker on behalf of other services and integrating information about location and context through APIs would represent additional business and revenue generating opportunities.
Most telcos are already exploring opportunities to exploit APIs, which will enable them to start offering network-as-a-service, voice-as-a-service, device management, billing integration and other services. Depending on platform and network capability, there are literally hundreds of APIs that telcos could offer to external developers. These APIs could be used to develop applications that are integrated with telcos’ network product or service, which in turn makes the telco more relevant to their customers.
Pat Adamiak, Senior Director, Cloud Solutions, Cisco
Charles J. Meyers, President, Equinix Americas
Arun Bhikshesvaran, CMO, Ericsson
John Zanni, VP of Service Provider Marketing & Alliances, Parallels
Consulting & Industry Analysis
Chris Brahm, Partner, Head of Americas Technology Practices, Bain
Andrew Collinson, Research Director, STL Partners
With thanks to our Silicon Valley 2012 event sponsors and partners:
And our EMEA 2012 event sponsors:
To read the note in full, including the following sections detailing support for the analysis…
Round 2 of the Cloud Fight
Selling to new customers
What channels are needed?
How will telcos perform in cloud?
With which services will telcos succeed?
How can telcos differentiate?
Comments on telcos’ role, objectives and opportunities
Four telcos’ perspectives
Telefonica Digital – focusing on business requirements
Verizon – Cloud as a key Platform
Orange Business Services – communications related cloud
Vodafone – future cloud vision
Amazon – A history of Amazon Web Services (AWS)
Cisco – a world of many clouds
Ericsson – the networked society and telco cloud
Aepona – Cloud Brokerage & ‘Network as a Service’ (NaaS)
The Telco 2.0™ Initiative
…and the following figures…
Figure 1 – Bain forecasts for business cloud market size
Figure 2 – Key barriers to cloud adoption
Figure 3 – Identifying the cloud growth markets
Figure 4 – Requirements for success
Figure 5 – New customers to drive cloud growth
Figure 6 – How to increase revenues from cloud services
Figure 7 – How to move cloud services forward
Figure 8 – Enterprise cloud channels
Figure 9 – Small businesses cloud channels
Figure 10 – Vote on Telco Cloud Market Share
Figure 11 – Telcos’ top differentiators in the cloud
Figure 12 – The global reach of Orange Business
Figure 13 – The telco as an intermediary
Figure 14 – Vodafone’s vision of the cloud
Figure 15 – Amazon Web Services’ cloud infrastructure
Figure 16 – Cisco’s world of many clouds
Figure 17 – Cloud traffic in the data centre
Figure 18 – Ericsson’s vision for telco cloud
Figure 19 – Summary of Ericsson cloud functions
Figure 20 – Aepona Cloud Services Broker
Figure 21 – How to deliver network-enhanced cloud services
…Members of the Telco 2.0 Executive Briefing Subscription Service and the Cloud and Enterprise ICT Stream can download the full 33 page report in PDF format here. Non-Members, please subscribe here. For this or other enquiries, please email email@example.com / call +44 (0) 207 247 5003.
Cloud 2.0: Event Summary Analysis. A summary of the findings of the Cloud 2.0 Executive Brainstorm, 10th November 2011, held in the Gouman Tower Hotel, London. The Brainstorm explored telcos’ strategic options to grow in the fast changing digital economy. It also considered how telcos can defend their core voice and messaging business, while also examining the steps they can take to improve the customer experience. (November 2012, Executive Briefing Service, Cloud & Enterprise ICT Stream)
Part of the New Digital Economics Executive Brainstorm series, the Cloud 2.0 event took place at the Guoman Hotel, London on the 10th November and looked at telcos’ strategic options, the future of the core communications products telcos rely on for much of their revenue and how they can improve the customer experience both to reduce churn and attract new customers.
Using a widely acclaimed interactive format called ‘Mindshare’ the event enabled 80 specially-invited senior executives from across the communications, media, banking and technology sectors to.
This note summarises some of the high-level findings and includes the verbatim output of the brainstorm.
Customer Experience: Back to the Future of Voice. Colin Lees of BT on the future of the UK voice service and the transformation of BT’s service platform. Presentation from EMEA Brainstorm, November 2011. (November 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream)
Customer Experience 2.0: Hosted Unicomms for Business, Presentation by Fabio Gori, Head, SP Marketing, EMEA, Cisco Systems. Sizing the opportunity of business communications in the cloud. Presented at EMEA Brainstorm, November 2011. (November 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream)
Summary: the early stage of development of the market means there is some confusion on the telco Cloud opportunity, yet clarity is starting to emerge, and the concept of ‘Network-as-a-Service’ found particular favour with Telco 2.0 delegates at our October 2010 Americas and November 2010 EMEA Telco 2.0 Executive Brainstorms. (December 2010, Executive Briefing Service, Cloud & Enterprise ICT Streamm)
The full 15 page PDF report is available for members of the Executive Briefing Service and Cloud and Enterprise ICT Stream here. For membership details please see here, or to join, email firstname.lastname@example.org or call +44 (0) 44 207 247 5003. Cloud Services will also feature at Best Practice Live!, Feb 2-3 2011, and the 2011 Telco 2.0 Executive Brainstorms.
Cloud concepts can sometimes seem as baffling, and as nebulous as their namesakes. However, in the recent Telco 2.0 Executive Brainstorms, (Americas in October 2010 and EMEA November 2010), stimulus presentations by IBM, Oracle, FT-Orange Group, Deutsche Telekom, Intel, Salesforce.com, Cisco, BT-Ribbit, and delegate discussions really brought the Cloud Services opportunities to life.
While it was generally agreed that the precise definitions delineating the many possible varieties of the service are not always useful, it does matter how operators can make money from the services, and there was at least consensus on this.
Sunshine Forecast: A Significant Opportunity…
IBM identified an $88.5Bn opportunity in the Cloud over the next 5 years, the majority of which is applicable to telcos, although the share that will end up in the telco industry might be as much as 70% or as little as 30%, depending on how operators go about it (video here).
According to Cisco, there is a $44Bn telco opportunity in Cloud Services by 2014, supported by the evidence of 30%+ enterprise IT cost savings and productivity gains that resulted from Cisco’s own comprehensive internal adoption of cloud services (video here). We see this estimate as reasonably consistent with IBM’s.
Oracle also brought the range of opportunities to life with seven contrasting real-life case studies (video here).
Ribbit, AT&T, and Salesforce.com also supported the viability of Cloud Cervices, arguing that concerns over trust and privacy are gradually being allayed. Intel argued that Network as a Service (NaaS) is emerging as a cloud opportunity alongside Enterprise and Public Clouds, and that by combining NaaS with the telco influence over devices and device computing power, telcos can be a major player in a new ‘Pervasive Computing’ environment. EMEA delegates also viewed Network-as-a-Service as the most attractive opportunity.
Fig 1 – Delegates Favoured ‘Network-as-a-Service’ of the Cloud Opportunities
Summary: IBM say that telcos are well positioned to provide cloud services, and forecast an $89Bn opportunity over 5 years globally. Video presentation and slides (members only) including forecast, case studies, and lessons for future competitiveness.
At the 11th EMEA Telco 2.0 Brainstorm, November 2010, Craig Wilson, VP, IBM Global Telecoms Industry, said that:
Cloud Services represent an $89Bn opportunity in 5 years;
Telcos / Service Providers are “well positioned” to compete in Cloud Services;
Security remains the CIO’s biggest question mark, but one that telcos can help with;
and outlined two APAC telco Cloud case studies.
Members of the Telco 2.0 Executive Briefing Service and the Cloud and Enterprise ICT Stream can also download Craig’s presentation here (for membership details please see here, or to join, email email@example.com or call +44 (0) 44 207 247 5003).
Summary: Telenor’s new ‘Mobile Business Network’ integrates SME’s mobile and fixed phone systems via managed APIs, providing added functionality and delivering greater business efficiency. It uses a ‘two-sided’ business model strategy and targets the market via developers.
The enterprise is the key field for new forms of voice and messaging; it’s where the social and economic value of bits exceeds their quantity by the greatest margin, and where the problems of bad voice & messaging are most severe.
People spend hours answering phone calls and typing information into computers – calls they take from people sitting behind computers that are internetworked with the ones they sit behind. Quite often, the answer is to send the caller on to someone else. Meanwhile, other people struggle to avoid calls from enterprises.
It’s got to change, and here’s a start: Mobilt Bedriftsnett or the ‘Mobile Business Network’ from Telenor.
Telenor are a large, Norwegian integrated telecoms operator, and a pioneer and early adopter of some Telco 2.0 ideas. As long ago as 2001, their head of strategy Lars Godell, was working on an early implementation of some of the ideas we’ve been promoting. They also have an active ‘Telenor 2.0′ strategic transformation programme.
Content Provider Access – CPA – established a standard interface for the ingestion, delivery, billing, and settlement of mobile content of any description that would be delivered to Telenor subscribers, and was the first service of this kind to share revenue from content sales with third parties and to interwork with other mobile and fixed line operators, years before the iPhone or even NTT’s pioneering i-Mode. Later, they added a developer sandbox (Playground) as well.
So, what would they do when they encountered the need for better voice & messaging? The importance of this line of business, and its focus on enterprises, has been part and parcel of Telco 2.0 since its inception (here’s a note on “digital workers” from the spring of 2007, and another on better telephony from the same period), and we’ve only become more convinced of its importance as a wave of disruptive innovators have entered the field.
We spoke to Telenor’s product manager for charging APIs, Elisabeth Falck, and strategy director Frank Elter; they think MB is “our latest move towards Telco 2.0”.
Voice 2.0: despite the changing value proposition…
In the Voice & Messaging 2.0 strategy report, we identified a fundamental shift in the value proposition of telephony; in the past, telephony was scarce relative to labour. That stopped being true between 1986 and 2001 in the US, when the price per minute of telephony fell below that of people’s time (the exact crossover points are 1986 for unskilled workers and landline calls, 1998 for graduates and mobile calls, and finally 2001 for unskilled workers and mobile calls).
Now, telephony is relatively plentiful; this is why there are now call-centre help desks and repair centres rather than service engineers and local repair shops. It’s no longer worth employing workers to avoid telephone calls; rather, it’s worth delivering services to the customer by phone rather than having a field sales or service force. The chart below visualises this relationship.
…and changing position in the value chain…
We also identified two other major trends in voice – commoditisation and fragmentation.
Voice is increasingly commoditised – that is to say, it’s a bulk product, cheap, and largely homeogenous. These are also the classic conditions of a product in perfect competition; despite the name and the ideological baggage, this isn’t a good thing, as in this situation economic theory predicts that profit margins will be competed away down to the absolute minimum required to keep the participants from giving up.
The provision of Voice is also increasingly fragmented and diverse – there are more and more producers, and more and more different applications, networks, and hardware devices incorporate some form of telephony. For example, games consoles like the Xbox have a voice chat capability, and CRM systems like Salesforce.com can be integrated with click-to-call services.
As a result, there’s less and less value in the telephone call itself – the period between the ringing tone and the click, when the circuit is established and bearer traffic is flowing. This bit is now cheap or free, and although Skype hasn’t eaten the world as it seemed it might in 2005, this is largely because the industry has reacted by bundling – i.e. slashing prices. Of course, neither the disruptors nor the traditional telcos can base a business on a permanent price war – eventually, prices go to zero. We’ve seen the results of this; several VoIP carriers whose business was based on offering the same features as the PSTN, but cheaper, have already gone under.
The outlook of Telco 2.0 Executive Brainstorm delegates as far back as 2007 demonstrates the widespread acceptance of these trends in the industry, and the increasing proliferation of diverse means of delivery of voice as show in the following chart.
… Voice is still the biggest game in Telcotown…
So why bother with voice? The short answer is that there are three communications products the public gladly pays for – voice, SMS, and IP access.
Telenor’s CPA, one of the most successful and longest-running mobile content plays, is proud of $100m in revenues. In comparison, the business voice market in Norway is NOK6.9bn – $1.22bn. Even in 10 years’ time, voice will comprise the bulk of Telco revenue streams. However grim the prospects, defending Voice is only optional in the sense that survival is optional.
Moreover the emergence of the first wave of internet voice players – Skype, Vonage, etc., and the subsequent fight back by Operators, demonstrates that there is still much scope for innovation in voice and messaging, and that the option of better voice and messaging is still open.
…although the rules are changing…
Specifically, the possible zone of value is now adjacent to the call – features like presence-and-availability, dynamic call routing, speech-to-text, collaboration, history, and integration with the field of CEBP (Communications-Enabled Business Processes). There may also be some scope for improving the bearer quality – HD voice is currently gaining buzz – although the challenge there is that the Internet Players can use better voice codecs as well (Skype already does).
…and the Enterprise market is where the smart money is
The crucial market for better voice & messaging is the enterprise, because that’s where the money is. Nowhere else does the economic value of bits exceed their quantity and cost so much.
For large enterprises, the answer will almost certainly come from custom developments. They are already extensive users of VoIP internally, and increasingly externally as well. They tend to have large customised IT and unified communications installations, and the money and infrastructure to either do their own development or hire software/systems integration firms to do it for them. The appropriate telco play is something like BT Global Services – the systems integration/managed services wing of BT.
But using the toolkit of Voice 2.0 is technically challenging. It’s been said that free software is usually only free if you value your time at zero; small and medium-sized businesses can never afford to do that.
Mobilt Bedriftsnett (MB) is Telenor’s response to this situation, aimed at Small and Medium Enterprises (SMEs). Its primary benefit is to improve business efficiency by extending the functions of an internal PBX and/or unified communications system to include all the companies’ mobile phones.
Telenor’s internal business modelling estimates the cost of CRM failures – missed appointments, rework of mistakes, complaints, lost sales – to a potential SME customer at between $500 and $2,000 a year. This is the economic ‘friction’ that the product is designed to address.
The Core Product is based on Telenor APIs…
The product is based on a suite of APIs into Telenor infrastructure, one of which replicates a hosted IP-PBX, i.e. IP Centrex, solution. It’s aimed at SMEs, and in particular, at integrating with their existing PBX, unified communications, and CRM installations. There’s a browser-based end user interface, which lets nontechnical customers manage their services.
There is also considerable scope for further development, and MB also provides four other APIs, which provide a click-to-call capability, bulk or programmatic SMS, location information, and “Status Push”. This last one provides information on whether a user is currently in coverage, power level, bandwidth, etc, and will be extended to carry presence-and-availability information and integrate with groupware and CRM systems in Q1 2010.
…and integrated with PBX/UC Vendor Client Solutions
Extensive work has been carried out with PBX/UC vendors, notably Alcatel-Lucent and Microsoft, to ensure integration. For example, one of the current use cases for the click-to-call API permits a user to launch a conference call from within MS Outlook or a CRM application. The voice switch receives an event from the SOAP API, initiates a call to the user’s mobile device, then bridges in the target number.
The ‘two-sided’ Enterprise ‘App Store’
MB is also the gateway to a business-focused app store, which markets the work of third-party software developers using the MB API to their base of SME customers. This element qualifies it as a two-sided business model. Telenor is thereby facilitating trade that wouldn’t otherwise occur, by sharing revenue from its customers with upstream producers and also by bringing SMEs that might not otherwise attract any interest from the developer community into contact with it. Developers either pay per use or receive a 70% revenue share depending on the APIs in use.
Telenor are using the existing infrastructure created for CPA to pay out the revenue share and carry out the digital logistics, and targeting the developer community they’re already building under their iLabs project. So far, third-party applications include integration with Microsoft’s Office Communication Server line of products, integration with Alcatel-Lucent and some other proprietary IP-PBXs, and a mobile-based CRM solution, WebOfficeOne.
Route to Market: Enterprise ICT Specialists
In a twist on the two-sided business model, MB services are primarily marketed to systems integrators, independent software developers, and CRM and IP telephony vendors, who act as a channel to market for core Telenor products such as voice, messaging, presence & availability, and location. This differs quite sharply from their experience with CPA, whose business is dominated by content providers.
Pricing is based on a freemium model; some API usage is free, businesses that choose to use the CPA payments system pay through the revenue sharing mechanism, and ones that don’t but do use the APIs heavily pay by usage.
Technical Architecture: migrating to industry standards
Telco 2.0 has previously articulated the seven questions concept – seven key customer questions that can be answered using telecom’s operator’s data assets as shown in the following diagram.
Telenor’s API layer consists of Simple Object Access Protocol (SOAP) and Web service interfaces between the customer needs on the left of the diagram, and a bank of service gateways which communicate with various elements of in the core network on the right.
At the moment, the click-to-call and status push interfaces are implemented using the proprietary Computer-Support Telecoms Applications (CSTA) standard, in order to integrate more easily with the Alcatel-Lucent range of PBXs. So far, they don’t implement Parlay-X (or OneAPI as the GSMA calls it), but they intend to migrate to the standard in the future. Like Microsoft OCS, Asterisk, and much else, the industry standard IETF SIP is used for the core voice, messaging, and availability functions.
Early days, high hopes…
Telenor is unwilling to describe what it would consider to constitute success with Mobilt Bedriftsnett; however, they do say that they expect it to be a “great source of income”. MB has only been live since June 2009, and traffic to CPA inevitably dwarfs that to the MB APIs at present.
…and part of a bigger strategic plan
Mobilt Bedriftsnett makes up the Voice & Messaging 2.0 element of Telenor’s transformation towards Telco 2.0. The other components of ‘Telenor 2.0’ are:
CPA, the platform enabling 3rd party mobile content transactions
the iLabs/Playground developer community
increasing strategic interest in M2M applications
a recently launched Content Delivery Network (or CDN – a subject gaining salience again, after the recent Arbor Networks study that showed them accounting for 10-15% of global Internet traffic )
Mobile Payments, Money transfer and Banking at Grameenphone in Bangladesh.
Lessons from Telenor 2.0
With Mobilt Bedriftsnett, Telenor has carried on its tradition of pioneering Telco 2.0 style business model innovations, though it is relatively early to judge the success of the ‘Telenor 2.0′ strategy.
At this stage of market development, Telenor’s approach therefore shows three important lessons to other industry players.
1) They are taking serious steps to create and try ‘two-sided’ telecoms business models.
2) The repeated mentions of CPA’s role in MB point to an important truth about Telco 2.0 – the elements of it are mutually supporting. It becomes dramatically easier to create a developer community, bill for sender-pays data, operate an app store, etc, if you already have an effective payments and revenue-sharing solution. Similarly, an effective identification/authorisation capability underlies billing and payments. Telenor understands and is acting on this network principle.
As there’s a change in leadership occurring at Vodafone, it’s a good time to reflect on the direction of the large convoy of opcos and investments being led by the good ship Newbury. Arun Sarin has stepped out of his asbestos business suit, albeit scorched by the flames of investors and board members, safe in the knowledge that his mission to vanquish more timid enemies is won. Although they don’t say it aloud, The Economistnotes that the core of this success was clinging on to markets where vertical integration is turning a profit (USA, emerging markets), and exiting those where is isn’t doing so well (Japan), whilst cost-cutting elsewhere the inevitable detritus of a decade of hyper-growth.
However, as the more acerbic tongues at The Registerpoint out, rather choppy waters lie ahead. The business is rapidly maturing, cost cutting reaches its limits, and new revenue streams (entertainment content, advertising, data) are either slow to ramp up or come with significant supplier costs that dilute margins.
According to their corporate history website, the name Vodafone is derived from ‘voice and data phone’. True or not, the conundrum of whether ‘voice is just data’ persists to this day. So as Vittorio Colao becomes fleet admiral, our burning question is: what to do about the stagnating core product? Along with its peers, Vodafone has conspicuously failed to significantly enhance its voice telephony offer, beyond offering better coverage. We don’t think that’s going to be a long-term winning position as access becomes hyper-abundant, and people’s time does not. Rather than ask how data services can replace lost voice revenue, ask how data can be used to rejuvenate that voice business. And as the biggest player in the international scene, Vodafone is very well placed to do something about it.
Telephony is built on false assumptions
The chart below (from our recently published Consumer Voice & Messaging 2.0 Report) compares the cost of telephony and labour. We show the per minute cost in the USA of using a telephone (fixed or mobile), along with hiring someone (high school or college graduate). What it tells us is that the ‘scarcity’ used to be in the telephone network, and now it is in our time and attention.
Only a decade ago, it was worth paying a graduate for an hour if it would have saved you from making an hour’s worth of mobile phone call.
Today, we barely factor in the cost of calling into our lives. Yet we are buried in voice messages, missed calls, emails and texts. Delivering ever more data to the user is not the same as creating ever more value. The value comes from brokering the right relationships, helping interactions occur at the right time and medium, eliminating unwanted intrusions, automating flows of information, and making users productive.
“Ask not how data can replace lost voice revenue, but how data can rejuvenate the personal communications experience.��? Satisfying people’s need to collaborate, chatter, and communicate should be central to every operator strategy. Here’s why…
Not a new problem
Mobile telephony is built off the same product template as fixed telephony, with the same assumptions and problems baked in from the 19th century. From the very beginning, problems have been evident. When Bell called Watson in that first call, the result wasn’t “oh, ****, he’s gone out for an afternoon in the pub��?. No, Bell had pre-arranged for Watson’s to be there ready at the other end. It was a bit of a fraud, to hide the absence of presence, availability or scheduling features.
We see these problems still today. You call me, but I just fail to answer in time, so you go to my voicemail. I see a missed call, and call you, not knowing your talking to my voicemail. As you’re already in a call, speaking to my voicemail, I get your voicemail. Why on earth doesn’t the phone network just connect us together?
This particular instance is an example of a failed rendezvous, and we examined the context and unfilled user needs in more depth in this previous post. Many of today’s short phone calls are manual transfers of presence, location and availability data that should ideally be eliminated. Why can’t I request a call from you, rather than only interrupt you? Why can’t I tell you’re calling me back about the message I left a week ago? Sadly, operators are too well rewarded for terminating calls of zero or negative value.
Voice: one product, many business models
As with all telcos, there are three inter-linked business models that Vodafone needs to support. These require very different features.
The first is its retail offer. This takes hardware from the network equipment providers, plus software from various innovators, and packages it up as the core bundle offer or as an add-on value-added service. This supply chain is slow, costly and inflexible today, and their Betavine effort is only a small step towards what’s really needed.
There’s still plenty of mileage though in selling conveniently packaged communications. We’re not yet at the point where “if it’s software, it must be given away for free��?. The users see the benefit to themselves, and are willing to pay for it. A good example at the moment is SpinVox, who offer a voicemail to text transcription service. Note how their own marketing copy says: “SpinVox has saved me at least two hours a week [our emphasis] of listening to often irrelevant voicemail.��? (And contrast this with the primary purpose of most mobile media content products, which is to fill dead time.) We’ll dive into the challenges and opportunities for retail products a little more below.
Next up are the wholesale products of the operator. We feel there is a massive hole here in most operators’ strategic approach, with a few honourable exceptions. Voice is already becoming just one facet of many applications and products, and operators aren’t making it easy to embed it in. Wholesale products need to be broader in scope (e.g. to include voicemail, push to talk, and 3rd party network integration), as well as deeper in integration (e.g. simple 3rd party trouble ticketing, provisioning of offers sold through non-operator channels).
Finally, there are the two-sided markets, which we’ve written about here. The telephone remains a wonderful way of consumers and enterprises interacting — think of it as ‘v-commerce’ — but there is a huge amount of friction and inefficiency involved. Whilst so much effort is being expended on entering mobile advertising, hardly any is being lavished on building new revenues on top of freephone numbers, call centres and interactive messaging.
Voice as a platform, not a product
We promised to come back to that retail proposition. Ten years ago, mobile phone penetration was in the low single digits. Today, more than half of humanity has one. A decade hence, the experience will also be transformed again. For example, your address book or contact list will be dynamic: ordered by who you ought to be talking to, giving real-time presence and availability data, and probably infused with messages from companies with whom you have ongoing commercial relationships. Mobile will be the ‘to go’ portion of the PC experience, not some separate world.
However, there is unlikely to be a one-size-fits-all evolution of the public telephone service. Instead, we move from an era of mass production to one of mass customisation. There are too many innovative applications, too many niches and customer needs, for any one company to address them all. Instead, operators need to take a leaf out of the Telco 2.0 book and focus on two things: providing distribution for these services (and integration with the core offer), as well as enabling a bunch of high-margin value-added services that the upstream partners pay for, not the downstream end users. If someone is a Facebook fanatic, help that partner get their experience into the user’s hands.
This requires synchronising a lot of moving parts of the puzzle: handsets, network, operational support, etc. The need for putting together a complete experience, rather than just piece parts, is becoming received wisdom, with the Apple iPod, iTunes PC client and music store trio being the canonical example. It’s hard to do, and it’s still early days. Apple have barely moved the needle with the iPhone — the only concession to the voice service is visual voicemail. (And they’ve made a mess of the SMS client.) It does nothing to address the underlying issues of why people are sending those messages, and how to either eliminate them, or make them more effective. Nokia’s Ovi is resolutely focused on the content side of the business, not communications.
As the biggest player, Vodafone has more leverage over handset suppliers and software platform vendors. Pick up the phone to Qualcomm. Whatever magic they’ve done for 3, ask for a bit to be sprinkled over the Vodafone handset range. We’d also expect an operator like Vodafone to produce handset and service offerings much more tightly coupled with the online services that users increasingly route their conversations through. On the corporate side, IBM, Microsoft and Avaya are obvious targets for closer integration.
One good sign is Vodafone’s acquisition of Danish social media start-up Zyb. This is completely the right direction, and we’d like to see the gas pedal pressed hard to roll this kind of “address book 2.0��? capability burned into as many handsets as possible.
This is also the time to make the most out of close relations with Verizon Wireless. Platforms need scale, new voice service features need scale, so why not become the de facto leader? Don’t wait for the standards bodies, make it a fait accompli.
Immediate action required: group communication
Whilst these long-term changes unfold, there a re short-term problems with the voice and messaging products, most notably in the pricing of services that compete against Internet offerings. Vodafone UK have cleverly priced ‘informational’ chatter differently from ‘social’ chatter with the ‘stop the clock’ promotion. After 3 minutes, you don’t rack up any more charges. This aligns value with pricing, and we like it.
The problem is that the online tools encourage users to communicate in groups, and to form conversations and communities. Voice and SMS pricing don’t align well with this. Why should a three-way call cost more? The users don’t see it that way. Why does sending an SMS to five people cost five times a much? Why does replying to a message cost the same an initiating the conversation? Why can’t I send Twitter status updates (with no termination charges) for free, to encourage more texts and calls?
There are many ways in which the traditional pricing assumptions of telephony and messaging don’t fit into our current communications landscape. Because Vodafone has shied away from being the price leader, it has more slack to play with here. You can afford to lose some money on termination fees to other operators if those charges have become illogical in the users’ minds. Or take a leaf from GupShup and use adverts to make group communications have no extra charges.
Be proud to be the phone company
Sometimes it feels like being a phone company is like an embarrassing medical condition nobody wants to admit to having. Voice communication will remain central to the human condition for as long as we’re around. Satisfying the need for people to collaborate, chatter, and communicate should be central to every operator strategy. Sadly, it too often ends up being delegated to the network equipment providers or handsets vendors, who tend to lack the skills or incentives to build complete services. If we had a shiny new R&D group, we’d be making the personal, social, human communications experience the top priority.
There are some carriers already making tentative moves towards a better telephony future. We like products like the H3G SkypePhone, but feel that there ought to be a lot more such examples. Embarq is making some useful moves with its eGo landline phone service. Verizon has made a good effort with iobi, but is utterly closed to outside innovation. Telekom Austria has some interesting softphone experiments on the go. Qwest has Q.Home on the launchpad. BT remains a bit of a dark horse here too.
Our own research found nearly 70 start-ups working on new voice and messaging services. (These are all documented in the report.) We’re sure there are more. None are really integrated with the telco platform. The opportunity to exceed the users’ expectations is there, and the business model — retail, wholesale and 2-sided platform — will bring in the cash to anyone who cares to execute on it.