This 30+ page article can be downloaded in PDF format here.  The Executive Summary is reproduced below.

Executive Summary

Following the brainstorming sessions in Nice, we have set out below what we consider to be the most important takeaways on high-level telco strategy and each of the seven hot topics in business model innovation covered in dedicated sessions at the event:

Telco Strategy – New Revenue from New Business Models

• There is almost universal agreement among telco executives that their industry needs to find new sources of revenue.
• Despite the current gloomy economic climate, 93% of the delegates in Nice agreed that exploring new business models that generate new revenue is just as important in the near term as achieving operational efficiency and retaining customers
• Three-quarters of the delegates characterised existing business and technical transformation efforts by their company or industry as either “not very effective” or “very poor”.
• The delegates voted top 3 strategic actions for the industry as “Creating new levels of collaboration between service providers”, “Understanding the needs of upstream industries much better” and “Understanding the needs of end users much better”.  

Open APIs – Where’s the joined-up commercial strategy?

• There is a great deal of work being done on APIs by the operator and vendor community, but there is a real risk of this activity being derailed by the emergence of numerous independent “islands” of APIs and developer programmes.
• It is still early days for the commercial model for APIs, but it is already becoming apparent that a one-size-fits-all solution will be difficult to achieve. It is important for operators to ensure that API platforms (and the associated revenue mechanisms) can service two distinct classes of customer:
• Broad adoption by thousands, perhaps millions, of developers via automated web interfaces (similar to signing up for Google Adwords or Amazon’s cloud storage & computing services);
• Large-scale one-off projects and collaborations, which may require custom or bespoke capabilities, such as being linked to subscriber data management systems or “semi-closed” or “private” APIs, for example with governments or major media companies.

Retail Services 2.0 – ‘Supermarket strategy’ not enough

• The most attractive options around retail services involve turning the operator’s network (and possibly devices) into a platform of “enablers” for third party services and applications. These assets and capabilities may not be easy to deliver, but once in place, should provide a defensible source of value.
• Whether a telco should also sell “enabled” services at retail depends upon their existing customer relationships, portfolio of existing in-house services and ease of developing retail partnerships.

• Some applications simply cannot be “sold” through an operator’s retail store, as they will be integral parts of much larger services. Although Amazon can enable the sale of a huge variety of products, delivering fresh food or fuels, for example, would not fit with its logistics business. But suppliers of such goods might still exploit Amazon’s various online commerce enablers.

Devices 2.0 – Still no consistent industry strategy

• Few fixed or mobile operators have successfully created new types of devices on their own. Few consumers, for example, would view their broadband “box” as a central hub of a home network – despite more than 10 years of discussion of interconnection with consumer electronics, utility meters and home automation.
• In the mobile space, probably the most important customisation has been the configuration of the telco’s own portal as the default browser home page. If anything, the shift towards smartphones and PC-based mobile broadband has further weakened telcos’ role – the majority of 3G data traffic goes straight to and from the Internet from “vanilla” devices.
• The future possibly holds some more hope. Delegates were strongly in favour of pushing for telco “control points” in otherwise open devices, which fits well with the heritage of SIM cards (which are expanding in capability) as well as standardisation in areas like the browser and widget frameworks (e.g. OMTP BONDI). Software pre-loaded with PC dongles or embedded 3G modems is another option.
• In the converged triple/quadplay space, femtocells offer another point of control and service delivery, close to the customer, but delegates viewed the notion of a separate “gateway” product with less enthusiasm. New classes of devices such as mobile Internet devices (MIDs), operator-enabled consumer electronics (Internet TVs, 3G music players, in-car systems etc.) also hold promise, but are seen more as low-risk experiments at this point.

Online Video Distribution – Time to sort out the “Net Neutrality” Issue

• Those pushing the ‘network neutrality’ issue are (deliberately or otherwise) causing confusion over differential pricing which creates public relations and regulatory risks for operators that need to be addressed.
• Operators need to develop a suite of value-added products and services for third-parties sending digital goods over their networks so they can generate incremental revenues that will enable continued network investment.
• Sending-party pays models may or may not work – this is an area where more experiments need to be tried. Distributors need to be working on disentangling bits that are able to be free from those that have to pay, not letting anyone get a free ride.

Enterprise Services 2.0 – A broader suite of platform services needed

• Telcos need to learn how to develop, sell and support services which are customised, as well as mass-market “basic” applications and APIs. Ideally, the technical platform will be made up of underlying components (e.g. the API interface “machinery” and the associated back-office support systems) designed to cope with both ‘off the shelf’ and ‘bespoke’ go-to-market models for new services.
• Especially in the two-sided model, there are very few opportunities to gain millions – or even tens of thousands – of B2B customers buying the same basic “product”. Google has managed it for advertising, while Amazon has large numbers of hosting and “cloud computing” customers – but these are the exceptions.
• Perhaps the easiest and most universal horizontal markets will be enhancements to voice and messaging capabilities – after all, these are the ubiquitous cross-sector services today.
• To really exploit unique assets and take friction out of business processes, there is a need to understand specific companies’ (or sectors’) processes in detail – and offer customised or integrated solutions. Despite the lower scale, the aggregated value may be even higher.

Technical Architecture 2.0 – Good Start, but Significant Gaps

• Operators are in a unique position in that they have a fuller picture of customers than any single website or retailer or service provider. Several have already recognised this, and a number of vendors are offering scalable platforms which claim to be in line with the current EU legislation on data protection.
• But as well as user profile data, the 2-sided business model requires on-demand response from the network infrastructure. Both the network and IT elements must work together to deliver this, implementing new control & monitoring systems such as Resource & Service Control Systems (RSC).
• Most new applications are centred around apps stores, mash-up environments, XaaS environments, and smartphone Web browsers, etc. which do not demand a traditional service delivery platform (SDP). In addition, enabling services are becoming an essential element in operators’ core products.
• These enabling services need a framework, which is highly flexible, agile and responsive, and integrated with the features defined by the Next Generation Mobile Networks (NGMN) alliance.

Telco 2.0 Pilots – How to trial Telco 2.0 business models

• There is insufficient time to pursue the usual protracted telco timescales for research and deliberation. Moreover, projects with long lead times – such as those involving governments – are typically unsuitable. Some target industries are also experiencing lengthening sales/decision cycles in the recession, which are also not optimal conditions for pilots.
• Web-based companies are often the most flexible, as are some academic institutions. There may also be a geographic dimension to this – countries with low regulatory burdens, or where it is unusual to have projects stuck for months with lawyers, are attractive for pilots.
• Working alone may be fastest, but collaborating with other operators is likely to be more effective in demonstrating the validity of the Telco 2.0 concept. 

© Copyright 2009. STL Partners. All rights reserved.
STL Partners published this content for the sole use of STL Partners’ customers and Telco 2.0™ subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of STL Partners, Elmwood Road, London SE24 9NU (UK). Phone: +44 (0) 20 3239 7530. E-mail: contact@telco2.net. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.