Telco Cloud Deployment Tracker: 5G core deep dive

Deep dive: 5G core deployments 

In this July 2022 update to STL Partners’ Telco Cloud Deployment Tracker, we present granular information on 5G core launches. They fall into three categories:

  • 5G Non-standalone core (5G NSA core) deployments: The 5G NSA core (agreed as part of 3GPP Release in December 2017), involves using a virtualised and upgraded version of the existing 4G core (or EPC) to support 5G New Radio (NR) wireless transmission in tandem with existing LTE services. This was the first form of 5G to be launched and still accounts for 75% of all 5G core network deployments in our Tracker.
  • 5G Standalone core (5G SA core) deployments: The SA core is a completely new and 5G-only core. It has a simplified, cloud-native and distributed architecture, and is designed to support services and functions such as network slicing, Ultra-Reliable Low-Latency Communications (URLLC) and enhanced Machine-Type Communications (eMTC, i.e. massive IoT). Our Tracker indicates that the upcoming wave of 5G core deployments in 2022 and 2023 will be mostly 5G SA core.
  • Converged 5G NSA/SA core deployments: this is when a dual-mode NSA and SA platform is deployed; in most cases, the NSA core results from the upgrade of an existing LTE core (EPC) to support 5G signalling and radio. The principle behind a converged NSA/SA core is the ability to orchestrate different combinations of containerised network functions, and automatically and dynamically flip over from an NSA to an SA configuration, in tandem – for example – with other features and services such as Dynamic Spectrum Sharing and the needs of different network slices. For this reason, launching a converged NSA/SA platform is a marker of a more cloud-native approach in comparison with a simple 5G NSA launch. Ericsson is the most commonly found vendor for this type of platform with a handful coming from Huawei, Samsung and WorkingGroupTwo. Albeit interesting, converged 5G NSA/SA core deployments remain a minority (7% of all 5G core deployments over the 2018-2023 period) and most of our commentary will therefore focus on 5G NSA and 5G SA core launches.

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75% of 5G cores are still Non-standalone (NSA)

Global 5G core deployments by type, 2018–23

  • There is renewed activity this year in 5G core launches since the total number of 5G core deployments so far in 2022 (effective and in progress) stands at 49, above the 47 logged in the whole of 2021. At the very least, total 5G deployments in 2022 will settle between the level of 2021 and the peak of 2020 (97).
  • 5G in whichever form now exists in most places where it was both in demand and affordable; but there remain large economies where it is yet to be launched: Turkey, Russia and most notably India. It also remains to be launched in most of Africa.
  • In countries with 5G, the next phase of launches, which will see the migration of NSA to SA cores, has yet to take place on a significant scale.
  • To date, 75% of all 5G cores are NSA. However, 5G SA will outstrip NSA in terms of deployments in 2022 and represent 24 of the 49 launches this year, or 34 if one includes converged NSA/SA cores as part of the total.
  • All but one of the 5G launches announced for 2023 are standalone; they all involve Tier-1 MNOs including Orange (in its European footprint involving Ericsson and Nokia), NTT Docomo in Japan and Verizon in the US.

The upcoming wave of SA core (and open / vRAN) represents an evolution towards cloud-native

  • Cloud-native functions or CNFs are software designed from the ground up for deployment and operation in the cloud with:​
  • Portability across any hardware infrastructure or virtualisation platform​
  • Modularity and openness, with components from multiple vendors able to be flexibly swapped in and out based on a shared set of compute and OS resources, and open APIs (in particular, via software ‘containers’)​
  • Automated orchestration and lifecycle management, with individual micro-services (software sub-components) able to be independently modified / upgraded, and automatically re-orchestrated and service-chained based on a persistent, API-based, ‘declarative’ framework (one which states the desired outcome, with the service chain organising itself to deliver the outcome in the most efficient way)​
  • Compute, resource, and software efficiency: as a concomitant of the automated, lean and logically optimal characteristics described above, CNFs are more efficient (both functionally and in terms of operating costs) and consume fewer compute and energy resources.​
  • Scalability and flexibility, as individual functions (for example, distributed user plane functions in 5G networks) can be scaled up or down instantly and dynamically in response to overall traffic flows or the needs of individual services​
  • Programmability, as network functions are now entirely based on software components that can be programmed and combined in a highly flexible manner in accordance with the needs of individual services and use contexts, via open APIs.​

Previous telco cloud tracker releases and related research

Each new release of the tracker is global, but is accompanied by an analytical report which focusses on trends in given regions from time to time:

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VNFs on public cloud: Opportunity, not threat

VNF deployments on the hyperscale cloud are just beginning

Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date

The past three years have seen many major telcos concluding collaboration agreements with the leading hyperscalers. These have involved one or more of five business models for the telco-hyperscaler relationship that we discussed in a previous report, and which are illustrated below:

Five business models for telco-hyperscaler partnerships

Source: STL Partners

In this report, we focus more narrowly on the deployment, delivery and operation by and to telcos of virtualised and cloud-native network functions (VNFs / CNFs) over the hyperscale public cloud. To date, there have been few instances of telcos delivering live, commercial services on the public network via VNFs hosted on the public cloud. STL Partners’ Telco Cloud Deployment Tracker contains eight examples of this, as illustrated below:

Major telcos deploying VNFs in the public cloud

Source: STL Partners

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Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’

The telcos in the above table are all of comparable stature and ambition to the likes of AT&T and DISH in the realm of telco cloud but have a diametrically opposite stance when it comes to VNF deployment on public cloud. They have decided against large-scale public cloud deployments for a variety of reasons, including:

  • They have invested a considerable amount of money, time and human resources on their private clouddeployments, and they want and need to utilise the asset and generate the RoI.
  • Related to this, they have generated a large amount of intellectual property (IP) as a result of their DIY cloud– and VNF-development work. Clearly, they wish to realise the business benefits they sought to achieve through these efforts, such as cost and resource efficiencies, automation gains, enhanced flexibility and agility, and opportunities for both connectivityand edge compute service innovation. Apart from the opportunity cost of not realising these gains, it is demoralising for some CTO departments to contemplate surrendering the fruit of this effort in favour of a hyperscaler’s comparable cloud infrastructure, orchestration and management tools.
  • In addition, telcos have an opportunity to monetise that IP by marketing it to other telcos. The Rakuten Communications Platform (RCP) marketed by Rakuten Symphony is an example of this: effectively, a telco providing a telco cloud platform on an NFaaS basis to third-party operators or enterprises – in competition to similar offerings that might be developed by hyperscalers. Accordingly, RCP will be hosted over private cloud facilities, not public cloud. But in theory, there is no reason why RCP could not in future be delivered over public cloud. In this case, Rakuten would be acting like any other vendor adapting its solutions to the hyperscale cloud.
  • In theory also, telcos could also offer their private telcoclouds as a platform, or wholesale or on-demand service, for third parties to source and run their own network functions (i.e. these would be hosted on the wholesale provider’s facilities, in contrast to the RCP, which is hosted on the client telco’s facilities). This would be a logical fit for telcos such as BT or Deutsche Telekom, which still operate as their respective countries’ communications backbone provider and primary wholesale provider

BT and Deutsche Telekom have also been among the telcos that have been most visibly hostile to the idea of running NFs powering their own public, mass-market services on the public and hyperscale cloud. And for most operators, this is the main concern making them cautious about deploying VNFs on the public cloud, let alone sourcing them from the cloud on an NFaaS basis: that this would be making the ‘core’ telco business and asset – the network – dependent on the technology roadmaps, operational competence and business priorities of the hyperscalers.

Table of contents

  • Executive Summary
  • Introduction: VNF deployments on the hyperscale cloud are just beginning
    • Numerous collaboration agreements between hyperscalers and leading telcos, but few live VNF deployments to date
    • DISH and AT&T: AWS vs Azure; vendor-supported vs DIY; NaaCP vs net compute
  • Other DIY or vendor-supported best-of-breed players are not hosting VNFs on public cloud
    • Telcos are looking to generate returns from their telco cloud investments and maintain control over their ‘core business’
    • The reluctance to deploy VNFs on the cloud reflects a persistent, legacy concept of the telco
  • But NaaCP will drive more VNF deployments on public cloud, and opportunities for telcos
    • Multiple models for NaaCP present prospects for greater integration of cloud-native networks and public cloud
  • Conclusion: Convergence of network and cloud is inevitable – but not telcos’ defeat
  • Appendix

Related Research

 

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Building the learning telco

Organisational learning is key to telcos’ success in the Coordination Age

Developments in technology and organisational digital transformations increased the pressure on learning and development (L&D) departments in telcos. L&D departments, many of which were compliance-focused, were tasked with upgrading telcos’ entire skills inventories to ensure that workforces were fit for new ways of working (e.g. AT&T’s “Workforce Reskilling” effort announced in 2016).

What was perhaps under-appreciated initially was that the need for L&D would not go away:

  • Telcos continue to operate in dynamic environments that are inherently unstable (e.g. pandemics, climate crises, new and evolving technologies);
  • Traditional telco revenue streams have remained under pressure, requiring new and innovative thinking to identify opportunities for growth.

The VUCA acronym (first coined in 1987) – standing for volatility, uncertainty, complexity, ambiguity – provides a useful framework to describe the current telco environment.

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The telco’s highly VUCA environment

learning telco

Source: STL Partners

Telcos have made changes to organisation structures in order to accommodate this reality, e.g. “flattening” the organisation and decentralising decision-making to accelerate the pace at which organisations can take action (absorb change and innovate).

Additionally, they are recognising the importance of learning to this process. Workforce skills must remain relevant and collective corporate intelligence must evolve to decide and inform winning strategies.

This type of “organisational learning” requires conscious efforts on the part of both the organisation and individual employees. It is not enough to make L&D the sole responsibility of an L&D team, or an HR department and to task them with identifying appropriate content and courses to push out to employees.

Organisations need to foster an environment where learning is encouraged and enabled in pursuit of organisational improvement, customer satisfaction, innovation and growth. After all, it is impossible to improve/do something new without learning in the first instance. Learning tools, processes and practices are required – and barriers to learning should be removed.

Learning barriers can include:

  • L&D teams creating bottlenecks to learning (e.g. restricted course access)
  • The existence of knowledge silos
  • Beliefs that “knowledge is power”
  • A lack of clear goals around using knowledge/new capabilities for improvement (i.e. learningto create behaviour change)
  • No incentives for individuals or teams to engage in learning
  • Uncertainty about processes for capturing and sharing learning
  • Fear of failure inhibiting trials in order to learn something new.

This report considers the key practices associated with organisational learning and identifies lessons from telcos who are progressing towards becoming a learning organisation.

Table of contents

  • Executive Summary
  • Introduction
  • The value of organisational learning
  • Enabling organisational learning
    • Types of learning in organisations
  • Organisational learning in practice
    • Learning as an organisational priority
    • Identifying learning purpose
    • Content-based learning
    • Person-led learning (knowledge sharing)
    • Process-led learning
    • Trial, reflection and practice
    • Recognition and rewards for learning
  • Towards learning organisations
    • Findings
    • Evaluation
  • Conclusions
  • Index

Related Research

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Fixed wireless access growth: To 20% homes by 2025

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Fixed wireless access growth forecast

Fixed Wireless Access (FWA) networks use a wireless “last mile” link for the final connection of a broadband service to homes and businesses, rather than a copper, fibre or coaxial cable into the building. Provided mostly by WISPs (Wireless Internet Service Providers) or mobile network operators (MNOs), these services come in a wide range of speeds, prices and technology architectures.

Some FWA services are just a short “drop” from a nearby pole or fibre-fed hub, while others can work over distances of several kilometres or more in rural and remote areas, sometimes with base station sites backhauled by additional wireless links. WISPs can either be independent specialists, or traditional fixed/cable operators extending reach into areas they cannot economically cover with wired broadband.

There is a fair amount of definitional vagueness about FWA. The most expansive definitions include cheap mobile hotspots (“Mi-Fi” devices) used in homes, or various types of enterprise IoT gateway, both of which could easily be classified in other market segments. Most service providers don’t give separate breakouts of deployments, while regulators and other industry bodies report patchy and largely inconsistent data.

Our view is that FWA is firstly about providing permanent broadband access to a specific location or premises. Primarily, this is for residential wireless access to the Internet and sometimes typical telco-provided services such as IPTV and voice telephony. In a business context, there may be a mix of wireless Internet access and connectivity to corporate networks such as VPNs, again provided to a specific location or building.

A subset of FWA relates to M2M usage, for instance private networks run by utility companies for controlling grid assets in the field. These are typically not Internet-connected at all, and so don’t fit most observers’ general definition of “broadband access”.

Usually, FWA will be marketed as a specific service and package by some sort of network provider, usually including the terminal equipment (“CPE” – customer premise equipment), rather than allowing the user to “bring their own” device. That said, lower-end (especially 4G) offers may be SIM-only deals intended to be used with generic (and unmanaged) portable hotspots.
There are some examples of private network FWA, such as a large caravan or trailer park with wireless access provided from a central point, and perhaps in future municipal or enterprise cellular networks giving fixed access to particular tenant structures on-site – for instance to hangars at an airport.

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FWA today

Today, fixed-wireless access (FWA) is used for perhaps 8-9% of broadband connections globally, although this varies significantly by definition, country and region. There are various use cases (see below), but generally FWA is deployed in areas without good fixed broadband options, or by mobile-only operators trying to add an additional fixed revenue stream, where they have spare capacity.

Fixed wireless internet access fits specific sectors and uses, rather than the overall market

FWA Use Cases

Source: STL Partners

FWA has traditionally been used in sparsely populated rural areas, where the economics of fixed broadband are untenable, especially in developing markets without existing fibre transport to towns and villages, or even copper in residential areas. Such networks have typically used unlicensed frequency bands, as there is limited interference – and little financial justification for expensive spectrum purchases. In most cases, such deployments use proprietary variants of Wi-Fi, or its ill-fated 2010-era sibling WiMAX.

Increasingly however, FWA is being used in more urban settings, and in more developed market scenarios – for example during the phase-out of older xDSL broadband, or in places with limited or no competition between fixed-network providers. Some cellular networks primarily intended for mobile broadband (MBB) have been used for fixed usage as well, especially if spare capacity has been available. 4G has already catalysed rapid growth of FWA in numerous markets, such as South Africa, Japan, Sri Lanka, Italy and the Philippines – and 5G is likely to make a further big difference in coming years. These mostly rely on licensed spectrum, typically the national bands owned by major MNOs. In some cases, specific bands are used for FWA use, rather than sharing with normal mobile broadband. This allows appropriate “dimensioning” of network elements, and clearer cost-accounting for management.

Historically, most FWA has required an external antenna and professional installation on each individual house, although it also gets deployed for multi-dwelling units (MDUs, i.e. apartment blocks) as well as some non-residential premises like shops and schools. More recently, self-installed indoor CPE with varying levels of price and sophistication has helped broaden the market, enabling customers to get terminals at retail stores or delivered direct to their home for immediate use.

Looking forward, the arrival of 5G mass-market equipment and larger swathes of mmWave and new mid-band spectrum – both licensed and unlicensed – is changing the landscape again, with the potential for fibre-rivalling speeds, sometimes at gigabit-grade.

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Table of contents

  • Executive Summary
  • Introduction
    • FWA today
    • Universal broadband as a goal
    • What’s changed in recent years?
    • What’s changed because of the pandemic?
  • The FWA market and use cases
    • Niche or mainstream? National or local?
    • Targeting key applications / user groups
  • FWA technology evolution
    • A broad array of options
    • Wi-Fi, WiMAX and close relatives
    • Using a mobile-primary network for FWA
    • 4G and 5G for WISPs
    • Other FWA options
    • Customer premise equipment: indoor or outdoor?
    • Spectrum implications and options
  • The new FWA value chain
    • Can MNOs use FWA to enter the fixed broadband market?
    • Reinventing the WISPs
    • Other value chain participants
    • Is satellite a rival waiting in the wings?
  • Commercial models and packages
    • Typical pricing and packages
    • Example FWA operators and plans
  • STL’s FWA market forecasts
    • Quantitative market sizing and forecast
    • High level market forecast
  • Conclusions
    • What will 5G deliver – and when and where?
  • Index

Telco innovation: Why it is broken and how to fix it

Telcos have tried innovating in many verticals

Incumbent telecommunications providers have seen their margins fall as basic telecommunications services, both fixed and mobile, have been increasingly commoditised. The need to provide differentiated services to counteract this trend is widely recognised in the industry, yet despite considerable investment and many attempts, too often new services launched by operators have failed to deliver the anticipated results. Yet some, especially in mobile banking and related services, have proved successful. Why is this so?

This report focuses on product and service innovation for customers, rather than on innovation in sales, marketing, finance, operations or networks. It addresses the introduction of new and innovative services and not the repackaging of existing communications services, for example in new pricing and service bundles (see Figure 2).

It looks at examples from a range of services, covering most of the new types of services introduced by MNOs over the past decade. These include:

  • Messaging: RCS and its competitors
  • Mobile financial and insurance services: Orange Money / Orange Bank, Millicom/Tigo’s joint ventures
  • Health: O2 Telehealth, Telenor’s Tonic health service
  • Smart home: AT&T’s Digital Life, Deutsche Telekom’s Qivicon
  • Lifestyle: Turkcell’s range of apps and Vodacom’s Mezzanine

We have covered many of these individually in previous reports, looking at how they were developed and have evolved over time, and whether and why they are (or we expect them to be) successful.

This report seeks to identify the common factors that led to success or failure, in order to establish some best practices for telcos in innovation. While we recognise that there are often several causes of success and failure, in some cases a single failure can undo much good work.

Previous reports this one builds on include:

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Product development or true diversification: How ambitious should telcos be?

Historically, telcos have aimed to find new customers for existing telecoms services, where the their market is not yet saturated, or expanding geographically to achieve scale. However, most telecoms markets are now nearly saturated – at least in the areas that telcos can profitably reach – so true service innovation, corresponding to the right hand side on the figure below, is now a crucial component for long term revenue growth.

The seven telco innovations discussed in this report are shown on the figure below. It is worth noting the progression Orange has made in building on its experience with its mobile money service to providing full banking services. This is highlighted in the diagram by the arrow, and is discussed more fully in the body of this report.

Most telcos innovation falls in the product development category on the Ansoff matrix

Telco innovations plotted on the Ansoff matrix

Source: STL Partners. For more on market development opportunity, see STL Partners report Making big beautiful: Multinational telcos need the telco cloud

In theory, one of the most effective ways of maximising the chances of success, and achieving the scale required to make a significant impact on revenues and profitability, is for operators to select services that target a large part of their existing customer base.

However, our analysis of the telco innovations in this report shows that there is actually little correlation between the distance from telcos’ core customer base and level of success. This because by tying new products and services too closely to their existing customer bases, telcos are actually limiting their ability to scale. While this approach is intended to help them compete more effectively against their peers, by increasing loyalty for core telecoms services, in reality, any telco-driven product development innovation is likely to compete with network agnostic service providers. So while it may make sense to offer something only to existing customers at the start, to truly scale telcos need to reach a wider market.

Orange is a good example of this transition. While its mobile money services in Africa remain tied to its telecoms customer base, its move into full-fledge banking in France is separate from telecoms services. As it rolls out full banking services across its footprint, this separation is likely to become more entrenched.

Many of the examples discussed in the main body of the report, including AT&T’s Digital Life, Orange Money and O2’s Telehealth venture were set up as separate businesses, which allowed their initial development to progress well. But this was not enough on their own to make them successful.

How successful have telcos been?

Comparing telcos’ investments into service innovations shows that, too often, they have made bets on areas that seem like natural opportunities for new services, but failed to gain traction because they didn’t do a rigorous enough assessment of the conditions for success.

To succeed in innovation, telcos must evaluate proposed new services or products much more painstakingly across three areas:

  1. User needs and requirements: that the product or service meets a real user need. This breaks down into two points:
    • The product or servicemust be easy to use and fit into users’ lifestyles.
    • And at the right price point. Most consumer products need a free tier to encourage customers to try and engage before paying (if ever). In some cases, the end user might not be the payer, so if that is the case then telcos need to identify the payer and ensure the product is relevant and valuable for them, too.
  2. Market structure and characteristics: clear vision of where the ROI is coming from. There are two main options for ROI – increased customer loyalty and new revenue.
    • For loyalty, telcos need a clear means of measuring whether the product or service is improving retention.
    • If telcos are seeking to build new revenue, they need to be realistic about how long it will take to achieve profitability and the size of the opportunity. Too often, telcos give up because they deem a new venture not valuable enough compared with the core business..
  3. Business structure: deciding on whether to develop something in house, to set up a joint venture, or acquire, and what the relationship is with the core business. The further away a new product or service is from the core business, the more independence it needs to develop and grow.

In this report, we compare the approaches of seven telco innovations, drawing on in-depth analysis from previous STL Partners reports, summarised in the table below.

Strategy is more important that degree of difficult for successful innovation

Assessment of quality of strategy and execution for telco innovationsSource: STL Partners

Our analysis shows that the difficulty of the innovation, i.e. whether it is product development or diversification into a new vertical, is less important to success than doing the difficult strategy and planning work outlined above.

For instance, while RCS is very closely tied to telcos’ existing customers and services, the necessary cooperation between telcos to bring it to market in a way that is valuable to consumers and potential enterprise customers was unrealistic from the start. By constrast, Tonic’s health insurance proposition is very different from Telenor’s core telecoms services, but Tonic’s clear vision and strategy, and ability to adapt to customer needs, have underpinned its early success in Bangladesh.

Read the full report to see a detailed assessment of each innovation across the three categories.

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Problem: Telecoms technology inhibits operator business model change (Part 1)

Introduction

Everyone loves to moan about telcos

‘I just can’t seem to get anything done, it is like running through treacle.’

‘We gave up trying to partner with operators – they are too slow.’

‘Why are telcos unable to make the most basic improvements in their service offerings?’

‘They are called operators for a reason: they operate networks. But they can’t innovate and don’t know the first thing about marketing or customer service.’

Anyone within the telecoms industry will have heard these or similar expressions of dissatisfaction from colleagues, partners and customers.  It seems that despite providing the connectivity and communications services that have truly changed the world in the last 20 years, operators are unloved.  Everyone, and I think we are all guilty of this, feels that operators could do so much better.  There is a feeling that these huge organisations are almost wilfully seeking to be slow and inflexible – as if there is malice in the way they do business.

But the telecoms industry employs millions of people globally. It pays quite well and so attracts talent. Many, for example, have already enjoyed success in other industries. But nobody has yet, it seems, been able to make a telco, let alone the industry, fast, agile, and innovative.

Why not?

A structural problem

In this report, we argue that nobody is at fault for the perceived woes of telecoms operators.  Indeed, the difficulty the industry is facing in changing its business model is a result of financial and operational processes that have been adopted and refined over years in response to investor requirements and regulation.  In turn, investors and regulators have created such requirements as a result of technological constraints that have applied, even with ongoing improvements, to fixed and mobile telecommunications for decades. In essence, operators are constrained by the very structures that were put in place to ensure their success.

So should we give up?

If the limitations of telecoms operators is structural then it is easy to assume that change and development is impossible.  Certainly sceptics have plenty of empirical evidence for this view.  But as we outline in this report and will cover in more detail in a follow up to be published in early February 2016 (Answer: How 5G + Cloud + NFV can create the ‘agile telco’), changes in technology should have a profound impact on telecoms operators ability to become more flexible and innovative and so thrive in the fast-paced digital world.

Customer satisfaction is proving elusive in mature markets

Telecoms operators perform materially worst on customer service than other players in the US and UK

Improving customer experience has become something of a mantra within telecoms in the last few years. Many operators use Net Promoter Scores (NPS) as a way of measuring their performance, and the concept of ‘putting the customer first’ has gained in popularity as the industry has matured and new customers have become harder to find. Yet customer satisfaction remains low.

The American Customer Satisfaction Index (ACSI) publishes annual figures for customer satisfaction based on extensive consumer surveys. Telecommunications companies consistently come out towards the bottom of the range (scoring 65-70 out of 100). By contrasts internet and content players such as Amazon, Google, Apple and Netflix have much more satisfied customers and score 80+ – see Figure 1.

Figure 1: Customers are generally dissatisfied with telecoms companies

 

Source: American Customer Satisfaction index (http://www.theacsi.org/the-american-customer-satisfaction-index); STL Partners analysis

The story in the UK is similar.  The UK Customer Satisfaction Index, using a similar methodology to its US counterpart, places the Telecommunications and Media industry as the second-worst performer across 13 industry sectors scoring 71.7 in 2015 compared to a UK average of 76.2 and the best-performing sector, Non-food Retail, on 81.6.

Poor customer services scores are a lead indicator for poor financial performance

Most concerning for the telecoms industry is the work that ACSI has undertaken showing that customer satisfaction is linked to the financial performance of the overall economy and the performance of individual sectors and companies. The organisation states:

  • Customer satisfaction is a leading indicator of company financial performance. Stocks of companies with high ACSI scores tend to do better than those of companies with low scores.
  • Changes in customer satisfaction affect the general willingness of households to buy. As such, price-adjusted ACSI is a leading indicator of consumer spending growth and has accounted for more of the variation in future spending growth than any other single factor.

Source: American Customer Satisfaction index (http://www.theacsi.org/about-acsi/key-acsi-findings)  

In other words, consistently poor performance by all major players in the telecoms industry in the US and UK suggests aspirations of growth may be wildly optimistic. Put simply, why would customers buy more services from companies they don’t like? This bodes ill for the financial performance of telecoms operators going forward.

Senior management within telecoms knows this. They want to improve customer satisfaction by offering new and better services and customer care. But change has proved incredibly difficult and other more agile players always seem to beat operators to the punch. The next section shows why.

 

  • Introduction
  • Everyone loves to moan about telcos
  • A structural problem
  • So should we give up?
  • Customer satisfaction is proving elusive in mature markets
  • Telecoms operators perform materially worst on customer service than other players in the US and UK
  • Poor customer services scores are a lead indicator for poor financial performance
  • ‘One-function’ telecommunications technology stymies innovation and growth
  • Telecoms has always been an ‘infrastructure play’
  • …which means inflexibility and lack of innovation is hard-wired into the operating model
  • Why ‘Telco 2.0’ is so important for operators
  • Telco 2.0 aspirations remain thwarted
  • Technology can truly ‘change the game’ for operators

 

  • Figure 1: Customers are generally dissatisfied with telecoms companies
  • Figure 2: Historically, capital deployment has driven telecoms revenue
  • Figure 3: Financial & operational metrics for Infrastructure player (Vodafone) vs Platform (Google) & Product Innovator (Unilever)

Why closing Telefonica Digital should make Telefonica more digital (and innovative)

Several different CSP organisation designs for Telco 2.0 Service Innovation

Telefonica is one of the companies that we have analysed in depth in the Telco 2.0 Transformation Index research. In this report, we analyse Telefonica’s recent announcement that it is restructuring its Digital Business unit. We’ll also be exploring strategies for transformation at the OnFuture EMEA 2014 Brainstorm, June 11-12, London.

Telco 2.0 strategy is a key driver of organisation design

We have defined Telco 2.0 and, specifically, Telco 2.0 Happy Piper and Telco 2.0 Service Provider strategies in other reports  so will not focus on the implications of each on service offerings and customer segments here.  It is, however, important to understand the implications each strategy has on the organisation in terms of capability requirements and, by definition, on organisation design – structure, processes, skills and so forth.

As Figure 1 shows, the old Telco 1.0 world required CSPs to focus on infrastructure-oriented capabilities – cost, service assurance, provisioning, network quality of service, and congestion management.

For a Telco 2.0 Happy Piper, these capabilities are even more important:

  • Being low-cost in a growing telecoms market gives a company an advantage; being low-cost in a shrinking telecoms market, such as Europe, can mean the difference between surviving and going under.
  • Congestion management was important in the voice-oriented telecoms market of yesteryear but is even more so in the data-centric market in which different applications (including voice) co-exist on different networks – 2G, 3G, 4G, Wi-Fi, Fibre, Copper, etc.

Telco 2.0 Happy Pipers also need to expand their addressable market in order to thrive – into Infrastructure Services, M2M, Embedded Connectivity and, in some cases, into Enterprise ICT including bespoke vertical industry solutions.  For sure this requires some new Service Development capabilities but, perhaps more importantly, also new partnerships – both in terms of service development and delivery – and a greater focus on Customer Experience Management and ‘Customer data/Big data’ in order to deliver valuable solutions to demanding enterprise customers.

For a Telco 2.0 Service Provider, the range of new capabilities required is even greater:

  • The ability to develop new platform and end-user (consumer and enterprise) services.
  • Brand management – not just creating a stolid telecoms brand but a vibrant end-user one.
  • New partners in other industries – financial services, media, advertising, start-ups, developers and so forth.


Figure 1: Capabilities needed for different Telco 2.0 strategies

Fig1 Capabilities need for different Telco 2.0 Strategies

Source: STL Partners/Telco 2.0

Most leading CSPs are pursuing a Telco 2.0 ‘Service Provider’ strategy

STL Partners analysis suggests that the majority of CSPs (and certainly all the tier 1 and 2 players) have at least some aspirations as a Telco 2.0 Service Provider.  Several, such as AT&T, Deutsche Telekom Orange, SingTel, Telefonica and Telenor, have been public with their ‘digital services’ aspirations.

But even more circumspect players such as Verizon and Vodafone which have to date largely focused on core telecommunications services have aspirations to move beyond this.  Verizon, for example, is participating in the ISIS joint venture on payments, albeit something of a slow burn at present.  Vodafone has also pushed into payments in developing markets via its successes with mPesa in Kenya and is (perhaps a slightly reluctant) partner in the WEVE JV in the UK on digital commerce.

Further back in their Telco 2.0 development owing to the attractiveness of their markets from a Telco 1.0 perspective are the players in the rapidly developing Middle Eastern and Asian markets such as Axiata, Etisalat, Mobily, Ooredoo, and Zain.  These players too aspire to achieve more than Happy Piper status and are already pushing into advertising, content and payments for consumers and M2M and Cloud for enterprises.

Telco 2.0 Service Providers are adopting different organisation designs

It is clear that there is no consensus among management about how to implement Telco 2.0 services. This is not surprising given how new it is for telecoms operators to develop and deliver new services – innovation is not something associated with telcos.  Everyone is learning how to take their first tentative steps into the wonderful but worrisome world of innovation – like toddlers stepping into the shallow beach waters of the ocean.

There is no tried and tested formula for setting up an organisation that delivers innovation but there is consensus (among STL Partners’ contacts at least) that a different organisation structure is needed to the one that manages the core infrastructure business.  Most also agree that the new skills, partnerships, operational and financial model associated with Telco 2.0 innovation needs to be ring-fenced and protected from its mature Telco 1.0 counterpart.

The degree of separation between the old and new is the key area of debate.  We lay out the broad options in Figure 2.

Fig 2 Organisation design models for Telco 2.0 Service Innovation

Fig 2 Organisation design models for Telco 2.0 Service Innovation

Source: STL Partners/Telco 2.0

For some, a central independent strategy unit that identifies potential innovations and undertakes an initial evaluation is a sufficient degree of separation.  AT&T and Verizon in the US have gone down this route – see Figure 3.

Fig 3 Organisation design approaches of 9 CSPs across 4 regions

Fig 3 Organisation design approaches of 9 CSPs across 4 regions

Source: STL Partners/Telco 2.0

In this model, ideas that are deemed promising are handed over the operating units to develop and deliver where, frankly, many are ignored or wallow in what one executive described to us as ‘Telco goo’ – the slow processes associated with the 20-year investment cycles of an infrastructure business.

Players such as Etisalat, Mobily and Ooredoo that are taking their first steps into Telco 2.0 services, but harbouring great aspirations, have gone a step further than this and set up Central Innovation Units.   In additional to innovation ideation and evaluation, these units typically undertake piloting, investment and, in some cases, some modest product development.  This approach is a sensible ‘first step’ into innovation and echoes the earlier attempts by many multi-national European players in the early 2000’s that had central group marketing functions that undertook proposition development for several countries.  The benefit is that the company can focus most resources on growth in existing Telco 1.0 services and Telco 2.0 solutions do not become a major distraction.  The downside is that Telco 2.0 services are seen as small and distant are always far less important than voice, messaging and connectivity services or devices ranges that can make a big impact in the next 3-6 months.

Finally, the most ambitious Telco 2.0 Service Providers – Deutsche Telekom, SingTel, Telenor, Telefonica and others – have developed separate New Business Units  The Telco 2.0 New Business Unit is given end-to-end responsibility for Telco 2.0 services.  The units find, develop, launch and manage new digital services and have full P&L responsibility.

STL Partners has long been a fan of this approach.  Innovation is given room to develop and grow under the guidance of senior management.  It has a high profile within the organisation but different targets, processes, people and partnerships to the core business which, left unchecked, would intentionally or unintentionally kill the new ‘rival’ off.

Five Principles for developing a Telco 2.0 New Business Unit

  1. Full control and responsibility.  The unit must have the independence from the core business to be able to control its own destiny and not be advertently or inadvertently impeded by the core business.  Telefonica, for example, went as far as to give its unit a separate physical location in central London.
  2. Senior management support.  While the unit is largely independent, it must be part of the corporate strategy and decisions about it must be made at the highest level.  In other words, the unit must be tied to the core business right at the top of the organisation – it is not completely free and decisions must be made for the overall good of the company.  Sometimes those decisions will be to the benefit or detriment of either the core business or the new business unit.  This is inevitable and not a cause for alarm – but these decisions need to be considered carefully and rationally by the senior team.
  3. Go OTT to start with.  One of the challenges faced by senior managers is how to leverage the capabilities of the core business – the network, customer data, retail outlets, brand, etc. – in the digital services offered by the new unit.  Clearly, it makes sense to use these assets to differentiate against the OTT players.  However, STL Partners recommends not trying to do this initially as the complexity of building successful interfaces between the new unit and the core business will prove too challenging.  Instead, establish some momentum with OTT services that the new unit can develop and deliver independently, without drawing on the core business, before then adding some specific core business capabilities such as location data, customer preference data or network QoS.
  4. Don’t forget to change management incentives …There is no point in filling the new business unit with senior management and fresh talent imbued with new skills and undertaking new business processes and practices unless they are clearly incentivised to make the right decisions!  It seems an obvious point but CSPs have a long and successful infrastructure legacy which means that management incentives are typically suitable for this type of business.  Managers typically have to hit high EBITDA margins, revenue targets that equate to around 50% of the capital base being generated a year, strong on-going capital investment – things that are at odds with a product innovation business (lower EBITDA margins, much lower capital intensity).  Management incentives need to change to reflect this and the fact that they business is a start-up not a bolt-on the core business.  These incentives need to be specific and can affect those in the core business as well as new unit.For example, if collaboration between the new unit and the core business units is a key requirement for long-term success (to build Telco 2.0 services that leverage core assets), then instigate a 360º feedback programme for all managers that measures how effectively they collaborate with their counter-parties in the other business units.  Scores here could be used to determine bonuses, share options or promotion – a sure way to instigate the required behaviour!
  5. …and investor metrics.  As mentioned above, a product innovation business has a different financial model to an infrastructure business.  Because of this, a new set of investor metrics is required focusing on lower margins and capital intensity.  Furthermore, users will often be a key metric rather than subscribers.  In other words, many users will not directly generate revenue (just as they do not for Google or Facebook) but remain an important driver of third-party sponsorship and advertising revenues.  Linked to this, ARPU will become a less important metric for the new business unit because the end user will be one of several revenue sources.

Many of the leading telecoms players have, therefore, done the right thing with the development of their digital units. So why have they struggled so much with culture clashes between the core telecoms business and the new digital innovations?  The answer lies in the way the units have been set up – their scope and role, the people that reside within them, and the processes and metrics that are used to develop and deliver services. This is covered in the next section of this report.

 

  • Even the boldest players are too Telco-centric with their digital business units
  • Defining traditional and new Telco 2.0 services
  • Current digital business units cover all the new Telco 2.0 services but should they?
  • Option: Reduce the scope of the Digital Business Units
  • Telefonica’s recent closure of Telefonica Digital
  • How might Telefonica’s innovation and ‘digital services’ strategy play out?

 

  • Figure 4: Defining Telco 2.0 new services
  • Figure 5: The mixed bag of services found in current digital business units
  • Figure 6: Separate new Telco 2.0 Services from traditional telecoms ones
  • Figure 8: The organisation structure at Telefonica
  • Figure 9: Telefonica’s strategic options for implementing ‘digital services’

Digital Commerce 2.0: New $50bn Disruptive Opportunities for Telcos, Banks and Technology Players

Introduction – Digital Commerce 2.0

Digital commerce is centred on the better use of the vast amounts of data created and captured in the digital world. Businesses want to use this data to make better strategic and operational decisions, and to trade more efficiently and effectively, while consumers want more convenience, better service, greater value and personalised offerings. To address these needs, Internet and technology players, payment networks, banks and telcos are vying to become digital commerce intermediaries and win a share of the tens of billions of dollars that merchants and brands spend finding and serving customers.

Mobile commerce is frequently considered in isolation from other aspects of digital commerce, yet it should be seen as a springboard to a wider digital commerce proposition based on an enduring and trusted relationship with consumers. Moreover, there are major potential benefits to giving individuals direct control over the vast amount of personal data their smartphones are generating.

We have been developing strategies in these fields for a number of years, including our engagement with the World Economic Forum’s (WEF) Rethinking Personal Data project, and ongoing research into user data and privacy, digital money and payments, and digital advertising and marketing.

This report brings all of these themes together and is the first comprehensive strategic playbook on how smartphones and authenticated personal data can be combined to deliver a compelling digital commerce proposition for both merchants and consumers. It will save customers valuable time, effort and money by providing a fast-track to developing and / or benchmarking a leading edge strategy and approach in the fast-evolving new world of digital commerce.

Benefits of the Report to Telcos, Other Players, Investors and Merchants


For telcos, this strategy report:

  • Shows how to evaluate and implement a comprehensive and successful digital commerce strategy worth up to c.$50bn (5% of core revenues in 5 years)
  • Saves time and money by providing a fast-track for decision making and an outline business case
  • Rapidly challenges / validates existing strategy and services against relevant ‘best in class’, including their peers, ‘OTT players’ and other leading edge players.


For other players including Internet companies, technology vendors, banks and payment networks:

  • The report provides independent market insight on how telcos and other players will be seeking to generate $ multi-billion revenues from digital commerce
  • As a potential partner, the report will provide a fast-track to guide product and business development decisions to meet the needs of telcos (and others) that will need to make commensurate investment in technologies and partnerships to achieve their value creation goals
  • As a potential competitor, the report will save time and improve the quality of competitor insight by giving a detailed and independent picture of the rationale and strategic approach you and your competitors will need to take


For merchants building digital commerce strategies, it will:

 

  • Help to improve revenue outlook, return on investment and shareholder value by improving the quality of insight to strategic decisions, opportunities and threats lying ahead in digital commerce
  • Save vital time and effort by accelerating internal decision making and speed to market


For investors, it will:

  • Improve investment decisions and strategies returning shareholder value by improving the quality of insight on the outlook of telcos and other digital commerce players
  • Save vital time and effort by accelerating decision making and investment decisions
  • Help them better understand and evaluate the needs, goals and key strategies of key telcos and their partners / competitors

Digital Commerce 2.0: Report Content Summary

  • Executive Summary. (9 pages outlining the opportunity and key strategic options)
  • Strategy. The shape and scope of the opportunities, the convergence of personal data, mobile, digital payments and advertising, and personal cloud. The importance of giving consumers control. and the nature of the opportunity, including Amazon and Vodafone case studies.
  • The Marketplace. Cultural, commercial and regulatory factors, and strategies of the market leading players. Further analysis of Google, Facebook, Apple, eBay and PayPal, telco and financial services market plays.
  • The Value Proposition. How to build attractive customer propositions in mobile commerce and personal cloud. Solutions for banked and unbanked markets, including how to address consumers and merchants.
  • The Internal Value Network. The need for change in organisational structure in telcos and banks, including an analysis of Telefonica and Vodafone case studies.
  • The External Value Network. Where to collaborate, partner and compete in the value chain – working with telcos, retailers, banks and payment networks. Building platforms and relationships with Internet players. Case studies include Weve, Isis, and the Merchant Customer Exchange.
  • Technology. Making appropriate use of personal data in different contexts. Tools for merchants and point-of-sale transactions. Building a flexible, user-friendly digital wallet.
  • Finance. Potential revenue streams from mobile commerce, personal cloud, raw big data, professional services, and internal use.
  • Appendix – the cutting edge. An analysis of fourteen best practice and potentially disruptive plays in various areas of the market.

 

A Practical Guide to Implementing Telco 2.0

 

Detailed table of contents

Section

Sub-sections

Part One: Identifying Telco 2.0 Opportunities

Developing the Right Telco 2.0 Strategy

  • Applying Porter’s thinking to the current telecoms market
  • Generic Telco 2.0 strategic options
  • Telco 2.0 strategies: how they drive shareholder returns
  • Which Telco 2.0 strategy for your organisation
  • Strategy comparison case studies: A Telco 2.0 Happy Piper (Vodafone UK) versus Telco 2.0 Service Player (O2)

Identifying & Prioritising Telco 2.0 Innovations

  • A taxonomy of Telco 2.0 opportunities
  • From isolated innovations to an integrated platform
  • Two approaches to identifying Telco 2.0 innovations
  • Approaches
  • Case study:  The STL Partners Innovation Scouting Service
  • Evaluating the potential opportunities: a structured approach to screening

Part Two: Implementing Telco 2.0 Opportunities

Introduction

  • A framework for innovation and business model transformation for telecoms

Service Offerings: Bringing Telco 2.0 Propositions to Market

  • A 12-stage end-to-end process for service development
    1. 1. Customer intentions and draft press release
    2. 2. Detailed value proposition and use cases
    3. 3. Fast validation with users
    4. 4. Capabilities assessment and own/partner role definitions
    5. 5. Revenue and cost models
    6. 6. Evaluation and business case
    7. 7. Competition and regulation
    8. 8. Technology and build process
    9. 9. Proof of Concept and final build
    10. 10. Sales and marketing
    11. 11. Launch
    12. 12. Evaluation and continuous development
  • Case studies: Vodafone 360, O2 Priority Moments
  • Checklists and templates for each stage

Value Network: Internal – Getting the Organisation Right to Deliver Telco 2.0 Innovation

  • Centralised versus decentralized organization structures
  • Integrating Telco 2.0 into the core organisation versus creating an independent unit
  • Case studies on different approaches: Telefonica and KPN

Value Network: External – Partnering to Grow the Pie

  • Evaluating closed versus open business models
  • Collaborating with other operators – when and how to do it
  • Working with other service providers – start-ups, established vendors and ‘OTT players’
  • Determining when to collaborate and when to compete

Technology: Prioritising Activities to Support Business Transformation

  • Understanding the developing demands on IT resources
  • Priority new functional area: Customer data
  • Approaches to IT transformation: Big Bang versus Continuous Improvement
  • Evaluating IT transformation approaches: a structured screening methodology
  • Case studies on IT transformation approaches: Vodafone and Telefonica

Finance: Optimising the Telco 2.0 Revenue & Cost Model

  • Revenue drivers: key revenue models and sources of revenue
  • Cost drivers: key types of cost and cost models
  • A framework for guiding decisions about revenue and cost management
  • Implications of new business models on financial and operational metrics

Marketplace: Managing the Regulatory Environment

  • Making the case against net neutrality…
  • …and for the ability to collaborate with other telecoms players to build value
  • Recommended next steps for CEOs

Telco 2.0: Killing Ten Misleading Myths

Summary: ‘Telco 2.0’ has evolved considerably since we put forward the original concept for telcos’ future success in 2006. Here we dispel ten myths and misunderstandings that have also evolved that can misdirect strategy. (August 2012, Executive Briefing Service, Transformation Stream.)

impact of 2sbm aug 2012

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Below is an extract from this 24 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 Telco 2.0 Transformation stream here. Non-members can subscribe here and for this and other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

We are about to publish a new strategy report ‘A Practical Guide to Implementing Telco 2.0‘ and will be previewing findings at the invitation only Executive Brainstorms in Dubai (November 5-7, 2012), Singapore (3-5 December, 2012), Silicon Valley (19-20 March 2013), and London (23-24 April, 2013). Email contact@stlpartners.com or call +44 (0) 207 243 5003 to order the report or find out more.

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Executive Summary – Killing Ten Myths

As an organisation devoted to driving innovation, Telco 2.0’s thinking has continually evolved. Today, most of our work is focused on how to implement new business models, and helping industry players develop strategies and activities to address new threats and opportunities presented by adjacent players.

We have also learned that as the thinking has evolved it has spawned some myths and misconceptions. (NB. This is not an attempt to stifle insightful criticism or debate, as intelligent challenges and critiques are essential to the development of sound strategy and well informed decision making, and we welcome such challenges.)

What matters about these myths is that they can inject a misleading or distracting idea capable of derailing balanced strategic consideration. The propagandists’ favourite weapons of ‘fear, uncertainty and doubt’ can easily and accidentally be triggered in this way. To counter this, here in summary are our ‘Telco 2.0 realities’ to what we’ve found to be the most prevalent and injurious misconceptions of Telco 2.0.

Figure 1 – Telco 2.0: Misleading Myths Vs. Realities

Misleading Myths and Realities of Telco 2.0

Source: STL Partners / Telco 2.0

Background: Telco 2.0 – then and now

When we first started the Telco 2.0 Initiative in 2006, the decline of the traditional telecoms industry business model based on voice and messaging seemed a long way off to most. ‘Broadband’ and ‘mobile data’ were still relatively immature propositions with great prospects for growing the industry further. ‘Smartphone’ was barely even a word, let alone a global phenomenon, and ‘tablets’ were what you took for a headache.

Most of our initial concepts have stood the tests of time and hindsight well. We drove for radical change in how the telecoms industry looked at:

  • Voice and messaging communications services;
  • The separation of services and network;
  • How networks would be increasingly powerful and intelligent ‘at the edge’;
  • The ongoing empowerment and participation of consumers;
  • Platforms’ that enabled new business to consumer services by re-purposing telco assets.

Subsequently, we looked at:

Next Steps

Our next action on the overall Telco 2.0 strategy agenda will to be to publish a new report: ‘A Practical Guide to Implementing Telco 2.0’. We will also presenting key findings at the Digital Arabia (Dubai, 5-7 November 2012) and Digital Asia (Singapore, 3-5 December 2012) Executive Brainstorms.

We are also launching two new services:

  • The Telco 2.0 Benchmarking Index, starting with a major report on the strategies of the top and most innovative telcos, and showing how the world’s telcos measure up to the leading standards of innovation;
  • The Telco 2.0 Innovation Scouting Service, designed to identify and evaluate, in a structured but flexible process, the best innovations for client members.  The service focuses on a full suite of revenue-generating products and services but can encompass other initiatives such as process improvements in customer care, operations etc.

To find out more about these or apply for an invitation to the Brainstorms, please email contact@stlpartners.com or call +44 (0) 207 247 5003. Additionally, we’ll be publishing major new research into Strategies in Voice and Messaging, ‘Telco Strategies in the Cloud’, and the impact and opportunities of combining personal data and digital and mobile commerce.

The rest of this report outlines the myths and their antidote realities in more depth (first two sections previewed below).

Telco 2.0 is about transforming telecoms business models

Myth 1: Telco 2.0 is just about two-sided business models

The concept of the two-sided telecoms business model has certainly had an impact on the industry, as can be seen for example in the illustrations below from Vodafone and Telefonica investor presentations.

Figure 2 – The impact of the Telco 2.0 Two-Sided Telecoms Business Model

Impact of Telco 2.0 on Investor Presentations

Source: STL Partners / Telco 2.0

While we’re pleased to see the idea of the two-sided business model propagated, there is a degree to which the idea has been a victim of its own success. It appears that some people now think that the two ideas of ‘Telco 2.0’ and ‘Two-Sided Telco Business Models’ are one and the same, and that the two-sided model is the totality of Telco 2.0.

This is not correct. While we still use the concept of the two-sided telco business model as a tool to explain how operators need to consider how they add value to consumer and enterprises and show that revenues can flow from multiple sources, ‘Telco 2.0’ is much more than this and includes:

  • Extending and enhancing existing core services – voice, messaging, data, content – to deliver more value to customers.
  • Developing bespoke communications and IT solutions for specific vertical industries.
  • Leveraging infrastructure more effectively to improve the customer experience (offer greater speed and responsiveness) while reducing cost (offloading traffic onto cheaper networks) and generating new revenue (‘onloading’ traffic from more expensive networks).
  • Distributing existing products and services via new channels and to new customers such as embedding voice within enterprise business processes or bundling connectivity in with consumer products.
  • Deploying assets including identity and authentication capabilities and customer data to both improve customers’ experience of existing core services and develop valuable new services for third-party enterprises and consumers.
  • Developing products and services that are largely ‘OTT’ – independent of the network.

STL Partners believes that business model innovation equates to business transformation.  Innovation can occur or be originated in many different ways and that each of these can have a knock-on effect through an organisation and beyond it to other organisations and industries.  Our analytical framework for business model innovation covers 5 domains (see Figure 3).

Figure 3 – Analytical framework for business model innovation

STL Partners Business Model Framework

Source: Source: Faber et al; Designing business models for mobile ICT services, 2001; adapted and developed by STL Partners

Redesigning Telco 1.0 really matters

Myth 2: Telco 1.1 isn’t part of it

Figure 4 – Existing service revenues in the UK market

Current Data Revenue Growth EMEA June 12

 

Source: STL Partners / Telco 2.0

To illustrate the challenges facing the existing business model, Chris Barraclough, MD and Chief Strategist, Telco 2.0 / STL Partners, presented the above example analysis of voice and data revenues from the UK market at the EMEA Brainstorm in June 2012 as a preview of analysis we are conducting across the main markets in Europe. Two-thirds of the delegates supported this analysis, with over half saying they thought this was ‘about right’ – although just under a third thought it too pessimistic. Whatever the eventual outcome in the market, there is little doubt that the existing business model is under increasing pressure across many regions and for many operators.

There is a natural temptation when presented with forecasts like this for executives to just seek out the nearest red pen and start to cut their way to profits. While a degree of cost reduction is clearly required, this cannot be the sole strategy or commoditisation and a total lack of flexibility is the only possible outcome.

It is obviously important to extend the life of the core business model, and telcos have long been adept at lobbying the regulator as a primary strategy. Further to this, both continuing to re-price data and bundle in new services are also proven strategies. But this really cannot change the game enough and telcos need to fundamentally improve the interactions they have with their customers to retain any relevance as consumer-facing entities.

We have looked at many ways in which telcos can learn how to improve their customers’ experience from the leading web and physical retailers, with Amazon as a particular case in point. This is critical both to telcos existing business and to their prospects for building new businesses. Better service / product experience design and delivery, and the use of customer data to drive personalisation and intelligence in their experiences, are key opportunities to improve customer interactions for telcos, as shown in Figure 5 – The ‘Telco 2.0 Flywheel’.

Figure 5 – The ‘Telco 2.0 Flywheel’

Telco 2 Customer Experience Flywheel

Source: STL Partners / Telco 2.0

And quality is not the only issue: the quantity of customer interactions matters too, and for many telcos the quantity is now declining. For customers it is a simple equation: experience = relevance, so if your customers start using you less, you become less relevant.  Telcos need to find new ways to interact with customers.  

To read the note in full, including the following sections detailing support for the analysis…

  • All telcos need to innovate
  • New Digital Business Models impact all global marketsTelcos need to act now
  • Some new models will create value
  • There’s more to strategy than ‘OTT’
  • Collaboration and Innovation both have roles
  • Strategy, platforms, people, and skills are the priorities
  • It’s not just a ‘Pipe Dream’

…and the following figures…

  • Figure 1 – Telco 2.0: Misleading Myths Vs. Realities
  • Figure 2 – The impact of the Telco 2.0 Two-Sided Telecoms Business Model
  • Figure 3 – Analytical framework for business model innovation
  • Figure 4 – Existing service revenues in the UK market
  • Figure 5 – The ‘Telco 2.0 Flywheel’
  • Figure 6 – Optimism in APAC
  • Figure 7 – Time remaining on key strategic control points
  • Figure 8 – Different Business Models need Different Metrics
  • Figure 9 – The six opportunity areas have different models
  • Figure 10 – ‘Under The Floor’ Pressures
  • Figure 11 – Six Telco 2.0 implementation strategies
  • Figure 12 – Telcos need new skills, systems, structures and incentives
  • Figure 13: The STL Partners 12-stage innovation development and launch process
  • Figure 14: A non-exhaustive collection of Telefonica’s Telco 2.0 projects
  • Figure 15: Vodafone – from splendid isolation in 2005 to local collaborator in 2011

Members of the Telco 2.0 Executive Briefing Subscription Service and the Telco 2.0 Transformation stream can download the full 24 page report in PDF format hereNon-Members, please subscribe here. For this or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Companies and Technologies Featured: ISIS, E5, Oscar, 4T Sverige, Vodafone, Telenor, Telefonica, Singtel, O2, Priority Moments, Top-Up Surprises.

Strategy 2.0: Lessons from Vodafone’s success in European SMB Communications

Summary:  Vodafone have been quietly stealing a march in the European SMB communications market with a well executed strategy centred on its OneNet cloud-based product. We look at how, including comparisons with BT, Telenor, and others. (May 2012, Executive Briefing Service)

Vodafone Voice Analysis May 2012

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Below is an extract from this 24 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. Non-members can subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

We’ll also be discussing our findings at the London (12-13 June) New Digital Economics Brainstorm where we’ll be joined by Bob Brace, Vodafone’s Head of Cloud and Unified Comms, in the Cloud 2.0 stream.

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Introduction – Challenges and Opportunities in Voice and Unified Communications

Although voice minutes of use are still rising slowly worldwide, it is increasingly the case that the predictions of falling revenues from traditional services are becoming a reality, and sooner than expected. A combination of regulatory pressures, price competition between operators, and disruptive competition from new entrants is crushing margins. 

Figure 1: Skype Punishes Carriers on International Voice

Skype Punishes Carriers on International Voice

Source: TeleGeography

Most worryingly, the continued huge growth in volumes at Skype and the popularity of alternative messaging options like WhatsApp, BlackBerry Messenger, and Apple’s iMessenger show that the disruption is disproportionately affecting the most profitable segments of the traditional telecoms bundle – international and SMS respectively. 

Increasingly, small and medium-sized businesses (SMBs), another key line of business, are turning to the growing numbers of independent VoIP providers. And, more broadly, voice, messaging, and video conferencing features are being disaggregated and diversified, showing up in all kinds of software, hardware, and Web service contexts – exactly as we predicted in 2007.

Again as we predicted, voice is more and more being delivered as part of a broader communications product. In the enterprise, this typically manifests itself as a “unified communications” (unicomms or UC) application, integrating telephony, voicemail, e-mail, and often also instant messaging, presence-and-availability, teleconferencing, and collaboration tools. This can be delivered on-premises, for example by an Asterisk system or an integrated hardware appliance like the ones Cisco sells, as a Web service (like Huddle or Salesforce Chatter), as a hosted/cloud-based network service, or as a telecomms operator service (like IP-Centrex).

In this context, some operators are not just surviving but succeeding. There is not only crisis here, but also opportunity. Cisco forecasts that there is a world market for $20bn of hosted unified-comms services, making up about 40% of the total “managed” UC market. Vodafone expects a 25% CAGR over the next four years in both UC and cloud services for SMBs and enterprises, with a total European market of $15bn in 2015. As for the broader communications market, BT estimates that the total UK SMB communications market is worth some £29bn from 4.8 million customers.

Figure 2: Cisco estimates $20bn of hosted unified communications, $50bn “managed”

Cisco Estimates $20bn of Hosted Unified Communications
Source: Cisco Systems, STL Partners

The drivers are clear – SMB customers are keen to get rid of the costs of owning and managing local PBXes on the one hand, to enjoy the (perceived) low, low prices of VoIP, and also to upgrade their communications services from the early 1990s GSM feature set plus the late 1990s BlackBerry e-mail service to something more in keeping with the age of Google +, the Apple iPhone, and Skype. 

At the same time, operators are in search of new sources of revenue to replace the business and international voice and SMS cash cows. As always, they also need to find applications that sell-through their basic connectivity products. Hardware vendors are keen to extend their own businesses, which are challenged by the availability of open-source software and cloud-based services. And the software and Internet service players are trying, in their turn, to defend against the remorseless drift towards “free”.

In this note, we will discuss three European operators’ response to the challenge and the results, and we will also discuss how the vigorous Voice 2.0 disruptor ecosystem relates to the SMB core market. We will start with an example of success – Vodafone.

Figure 3: Why SMB & enterprise UC is a priority at Vodafone

Why SMB & Enterprise UC is a Priority at Vodafone
Source: Vodafone interim report

Vodafone: clear definitions and responsibilities pay off

In the UK, this space is dominated by two players, Vodafone and the ex-incumbent BT. Their results contrast dramatically. 

Vodafone is aggressively promoting a cloud-based UC package, OneNet, to its SMB customers in the six biggest European markets, and looking to roll it out across the wider Vodafone Group. 

Meet Vodafone OneNet: Unified Comms in the Cloud for SMBs

OneNet is a cloud-based unicomms product, which offers single numbers for both fixed and mobile telephony, advanced call management, multi-ring and hunt groups, and voicemail integrated with push e-mail across mobile devices, fixed phones, and VoIP softphones, with a single bill and central account management via a Web interface and a smartphone app. Vodafone also offer Office 365 from Microsoft as an extra cost option and later this year (2012) will offer integration between One Net and Microsoft Lync enabling “click to call from Microsoft applications and the ability to answer an incoming call to a mobile number in Lync.

OneNet Express is a lightweight version of the product for small businesses, offering virtual landline numbers and some call management features, as well as the account management service, for mobile lines only. Both versions of the product are delivered as pure network services, running in Vodafone’s core network.

A Note on the Accounts

Although Vodafone is increasingly keen to boast about its performance in the SMB and enterprise markets, it doesn’t yet provide a line-of-business analysis in its accounts. However, we’ve constructed a roughly comparable data series, based on the growth figures Vodafone does provide, its own statement that 31% of its European revenue is from business customers, and its geographical segment breakdowns. 

A caveat must be introduced in that Vodafone Global Enterprises (VGE), the large enterprise & government business roughly analogous to BT Global Services, is included in the Vodafone series while BTGS is broken out in the BT accounts. BT does not provide a breakdown of BTGS revenue detailed enough to create an identical BT series. However, as we will soon see, it is unlikely that Global Services have contributed enough growth to falsify the conclusion we are about to draw.

In the six OneNet markets (Germany, Italy, Spain, the UK, the Czech Republic, and Portugal) through 2011, revenue growth averaged 4.8%, and it is worth noting that there is substantial momentum. Q1 saw sequential growth of 2.4%, Q2 4.85%, and Q3 7.38%. In the market and economic context, this is a spectacular performance.

Figure 4: Vodafone Is Doing Far Better In The UK

Vodafone is Doing Far Better in the UK
Source: STL Partners, Vodafone, BT

In the last 7 quarters, Vodafone’s revenue from UK business customers grew in 6 of them. It beat BT in every one of the quarters we looked at. Not only is it growing quite quickly, while BT’s is shrinking dramatically, it is almost three times as big in absolute terms (although some of this will be down to the differences in segment allocation). 

In Europe more broadly, the same picture is visible even more strongly, with the SMB segment growing at 5-8%% in major markets like Germany and Italy, and accounting for most of the growth in final ARPU. Although Vodafone’s south European interests are in the firing line of the economic crisis, this line of business has been remarkably robust. In the last three months of 2011, service revenue in Italy shrank almost 5 per cent – but revenue from SMBs and enterprises rose 1.9%. At the same time, service revenue in Germany grew 0.3%, but the OneNet target markets grew 5%. In Q2, service revenue in Italy was down 4.1%, but enterprise was up 5.8%, and OneNet itself was growing at 70% annually. In Germany, at the other end of the European economic spectrum, enterprise was up 6.6% year on year compared with total service revenue at 1.2%.

Figure 5: OneNet Markets Doing Rather Nicely, Thanks

OneNet Markets Doing Rather Nicely, Thanks
Source: Vodafone interim results presentation, November 2011

To read the note in full, including the following additional analysis…

  • BT: Incumbent or Innovator?
  • BT Voice: Volumes Shrinking…
  • Two other European operator plays
  • Telenor: The Same Factors, the Same Success?
  • So, How Did Vodafone Do It?
  • Compare and Contrast: Vodafone 360
  • The Disruptors: Twilio, Tropo, and friends
  • The Future: beyond hunt groups
  • Conclusions & Recommendations
  • 1: Service design
  • 2: Organisational focus
  • 3: Channels to market
  • 4: Cloud and software power
  • The Telco 2.0™ Initiative

…and the following figures…

  • Figure 1: Skype Punishes Carriers on International Voice
  • Figure 2: Cisco estimates $20bn of hosted unified communications, $50bn “managed”
  • Figure 3: Why SMB & enterprise UC is a priority at Vodafone
  • Figure 4: Vodafone Is Doing Far Better In The UK
  • Figure 5: OneNet Markets Doing Rather Nicely, Thanks
  • Figure 6: Enterprise & SMB Outgrowing Vodafone Group Revenues in last two quarters
  • Figure 7: BT Group strategic priorities
  • Figure 8: BT Organisational Structure – an SMB might touch all of these
  • Figure 9: BT Global Services revenues year-on-year
  • Figure 10: BT losing call volume in the UK…
  • Figure 11: A simple proposition
  • Figure 12: Enterprise revenue in Turkey growing 33% sequentially
  • Figure 13: Cisco’s view of SMB, Developer, and Enterprise Requirements

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 24 page report in PDF format hereNon-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Technologies and industry terms referenced: SMBs, strategy, voice, unified communications, channel marketing, partners, business model, Vodafone, BT, Telenor, Twilio, Tropo, VOIP.

 

M2M 2.0: Market, Business Models, and Telcos’ Role(s)

Summary: Our latest report on M2M 2.0 covers: M2M market growth, structure and dynamics; business models; the best role(s) for telcos; and leading thinking from Deutsche Telekom, Vodafone, Telenor, KPN and Swisscom. It describes how ‘Service Enablers’ are key to the telco opportunity in M2M in addition to connectivity. (July 2011, Executive Briefing Service)

M2M Pie Chart Service Enablers July 2011

  Read in Full (Members only)    Buy This Report    To Subscribe

Below is an extract from this 39 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. Non-members can buy a Single User license for this report online here for £595 (+VAT) or subscribe here. For multiple user licenses or other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

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Background


Our previous M2M 2.0 research includes: M2M 2.0: New Approaches Needed; Aligning M2M with Telco 2.0 Strategies; and M2M / Embedded Market Overview, Healthcare Focus, and Strategic Options. M2M is also a theme of the upccoming New Digital Economics Exeutive Brainstorms in H2 2011, and there is a thought-provoking video (registration required) by Ericsson on the ‘Social web of things‘ on our Best Practice Live! site.

It’s a Long Way to the Top

The grand vision of 50 Billion connected devices looks a long way distant when contemplating the ‘cottage industry’ that is M2M today.

While there are lots of possibilities for connecting devices usefully, there are numerous challenges to doing it well and growing the market to its full potential:

  • There are many different networks may be used for M2M – cellular, WiFi, WiMax, fixed, Bluetooth and other radio networks;
  • The needs of existing and potential M2M customers are very diverse;
  • There are many different types of potential M2M connectivity and services providers, from vertical specialists, through fixed and mobile telcos, other network owners, and device makers;
  • There are many diverse M2M devices, some with have 30 year life-spans, others lives measured in months;
  • And massive growth in intelligent devices that can increasingly choose different networks for different applications.

There are also industry barriers to the take-up of current offerings, such as

  • The lack of common, global, flexible solutions;
  • Performance and cost issues;
  • A low base of user and potential awareness and understanding.

Figure 3 (Extract) – The Key Challenge for M2M Growth is to Create a Broad, Open Market

M2M 2.0 rating of the industry barriers to M2M adoption

Source: Delegate Vote, 11th Telco 2.0 EMEA Brainstorm

More Money is in Service Enablers

It is our view (and that of the attendees at our last M2M brainstorm) that the pure connectivity revenues (to be paid for delivering the data from machine to machine) will become highly commoditised and low margin.

The “growth opportunity” will be in Software Enabling Services (SES), responsible for such activities as device provisioning, update/rollback of device software and firmware, data-warehousing, and some forms of data reduction pushed down into the network. These could be delivered traditionally or as Software-as-a-Service (SaaS).

How much Money, and for Whom?

The complex driving and structural factors lead to a high degree of uncertainty in the Industry’s view of the market opportunity. For example, on average, delegates thought that by 2015, service enabler revenues would comprise a value of 78% of connectivity revenues – although this average was formed by a large group that thought it would be in the range 20-40% and a small minority that thought it would be much higher (>200%)

What role(s) should Telcos play?

Operators can add value by making it easier to use their connectivity and providing more “M2M-friendly” interfaces – often described as managed connectivity. Beyond this, they can look to create and participate in the service enablers market for developers/application providers to easily identify, authenticate, provision, and maintain their device fleet; to update and rollback software on the devices and enable them to deploy processing logic into the “Internet of things” in order to render the system more robust, distributed, and autonomous.

Some operators already have the skills and resources to offer the application development, implementation and service hosting on top of this. Summarised in the report are examples of leading thinking and practice including Vodafone’s Global M2M Platform, Telenor Objects, Deutsche Telekom’s ‘Intelligent Network’, KPN’s and Swisscom’s platforms, plus we have previously reported on Verizon’s Open Development Initiative (ODI) in the US.

Figure 7 (Extract) – Why The Classical Approach to M2M May Fail

M2M 2.0 Why the classical approach may fail July 2011

Source: Telenor Presentation

The industry as a whole has made rapid progress but could do much more to stimulate the embedded mobility market and drive growth through standards, interoperability and portability. The industry’s historical reluctance to do more to open itself up has left it vulnerable to being marginalized. The GSMA’s recent acceptance of over-the-air (OTA) SIM update, opens up the promise of more practical ways for an M2M customer to switch operator. It now rests on the industry (or failing that, the regulatory authorities) to deliver this promise.

Telco 2.0 Take-Out & Next Steps

M2M is growing up as an industry, and becoming more coherent and adopting increasingly similar concepts and vocabulary. However, as the wide variation in voting testifies, there is still considerable divergence in understanding and vision.

The M2M Opportunity is potentially significant but does not necessarily belonging to cellular networks, particularly if the industry does not work out how to create more common models that allow customers to use M2M in the way they actually need to use it – flexibly, seamlessly and cheaply.

While there is much energy in the debate on Machine-to-Machine in the operator community, there is widespread recognition that it is still something of a ‘cottage industry’ for operators at present, and a welcome sense of realism in that operators seem to understand that they don’t have all the answers. The core strategic challenge is to find a model that will scale beyond bespoke vertical industry applications.

While there is not yet a straightforward consensus on the relative value of service enablers compared to connectivity, our view remains that telcos need to develop the service enabler model as the connectivity market will be highly commoditised. We will continue to work to support this community, develop the service enabler model, and promote collective industry progress on M2M.

To read the full 39 page report, including analysis of the presentations, voting and delegate analysis from the M2M 2.0 Executive Brainstorms in April 2011, and London in November 2010, and the following charts…

  • Figure 1- T-Mobile’s Forecast of European M2M Markets
  • Figure 2 – Vodafone’s Global M2M Platform
  • Figure 3 – The Key Challenge for M2M Growth is to Create a Broad, Open Market
  • Figure 4 – What is the best service enabler opportunity for telcos?
  • Figure 5 – Will connectivity and generic horizontal service enabler platforms emerge and define the market?
  • Figure 6 – What are the priorities for the industry in developing M2M opportunities?
  • Figure 7 – Why ‘classical’ approaches to M2M may fail
  • Figure 8 – Horizontally layered approach needed
  • Figure 9 – KPN Development Platform
  • Figure 10 – Forecast share of service enabler revenue by type of player
  • Figure 11 – 2015 Global Service Enabler vs. Connectivity Revenues
  • Figure 12 – Issues for the ‘Internet of Things’
  • Figure 13 – Operator opportunities in the ‘Internet of Things’
  • Figure 14 – How would you characterise Ericsson’s vision of the Social Web of Things?
  • Figure 15 – What percentage of connections will be made by cellular mobile networks in 2020?

……Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 39 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for £595, or for multi-user licenses and any other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

Organisations, products and industry terms referenced: API, ARPU, Beecham Research, Bluetooth, Bosch, BT / Arqiva, Cincius, connected car, Deutsche Telekom, Embedded Mobile, energy, Enfora, Ericsson, Facebook, GSM, GSMA, healthcare, HLR, HTTP, IMSI, Indesit, intelligent networks, Internet of things, iPhones, Kindle, KPN, Logica, M2M, messaging, m-health, MNC, MVNE, MVNO, Novatel, Objects, Open Development Initiative, Orange, OTA, OTT, platforms, roaming, SaaS, Service Enabler, SIM, smart grid, SMS, Social Web of Things, Software-as-a-Service, spectrum policy, standardization, strategy, Swisscom, Telenor, Telenor Objects, T-Mobile, transport, USIM, Verizon, Vertical, Vertical M2M, Vodafone, WiMAX, Zigbee.

 

The Roadmap to New Telco 2.0 Business Models

$375Bn per annum Growth or Brutal Retrenchment? Which route will Telcos take?

Over the last three years, the Telco 2.0 Initiative has identified new business model growth opportunities for telcos of $375Bn p.a. in mature markets alone (see the ‘$125Bn Telco 2.0 ‘Two-Sided’ Market Opportunity’ and ‘New Mobile, Fixed and Wholesale Broadband Business Models’ Strategy Reports). In that time, most of the major operators have started to integrate elements of Telco 2.0 thinking into their strategic plans and some have begun to communicate these to investors.

But, as they struggle with the harsh realities of the seismic shift from being predominantly voice-centric to data-centric businesses, telcos now find themselves:

  • Facing rapidly changing consumer behaviours and powerful new types of competitors;
  • Investing heavily in infrastructure, without a clear payback;
  • Operating under less benign regulatory environments, which constrain their actions;
  • Being milked for dividends by shareholders, unable to invest in innovation.

As a result, far from yet realising the innovative growth potential we identified, many telcos around the world seem challenged to make the bold moves needed to make their business models sustainable, leaving them facing retrenchment and potentially ultimately utility status, while other players in the digital economy prosper.

In our new 284 page strategy report – ‘The Roadmap to Telco 2.0 Business Models’ – we describe the transformational path the telecoms industry needs to take to carve out a more valuable role in the evolving ‘digital economy’. Based on the output from 5 intensive senior executive ‘brainstorms’ attended by over 1000 industry leaders, detailed analysis of the needs of ‘upstream’ industries and ‘downstream’ end users markets, and with the input from members and partners of the Telco 2.0 Initiative from across the world, the report specifically describes:

  • A new ‘Telco 2.0 Opportunity Framework’ for planning revenue growth;
  • The critical changes needed to telco innovation processes;
  • The strategic priorities and options for different types of telcos in different markets;
  • Best practice case studies of business model innovation.

The ‘Roadmap’ Report Builds on Telco 2.0’s Original ‘Two-Sided’ Telecoms Business Model

Updated Telco 2.0 Industry Framework

Source: The Roadmap to New Telco 2.0 Business Models

 

Who should read this report

The report is for strategy decision makers and influences 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 valuable to those managing or considering medium to long-term investment in the telecoms and adjacent industries, and to regulators and legislators.

It provides fresh, creative ideas to:

Grow revenues beyond current projections by:

  • Protecting revenues from existing customers;
  • Extending services to new customers;
  • Generating new service offering and revenues.

Stay relevant with customers through:

  • A broader range of services and offers;
  • More personalised services;
  • Greater interaction with customers.

Evolve business models by:

  • Moving from a one-sided to a two-sided business model;
  • Generating cross-platform network effects – between service providers and customers;
  • Exploiting existing latent assets, skills and relationships.


The Six Telco 2.0 Opportunity Areas

Six Telco 2.0 Opportunity Types

Source: The Roadmap to New Telco 2.0 Business Models

What are the Key Questions the Report Answers?

For Telcos:

  • Where should your company be investing for growth?
  • What is ‘best practice’ in telecoms Telco 2.0 business model innovation and how does your company compare to it?
  • Which additional strategies should you consider, and which should you avoid?
  • What are the key emerging trends to monitor?
  • What actions are required in the areas of value proposition, technology, value / partner network, and finances?

For Vendors and Partners:

  • How to segment telecoms operators?
  • How well does your offering support Telco 2.0 strategies and transformation needs in your key customers?
  • What are the most attractive new areas in which you could support telcos in business model innovation?

For Investors and Regulators:

  • What are and will be the main new categories of telcos/CSPs?
  • What are the principle opportunity areas for operators?
  • What are and will be operator’s main strategic considerations with respect to new business models?
  • What are the major regulatory considerations of new business models?
  • What are the main advantages and disadvantages that telcos have in each opportunity area?

Contents

  • Executive Summary & Introduction
  • Pressures on Operators
  • The new Telco 2.0 Framework
  • Principles of Innovation and Services Delivery
  • – Strategic Positioning
  • – Design
  • – Development and delivery
  • Categorising telcos
  • Category 1: Leading international operators
  • Category 2: Regional leaders
  • Category 3: Wholesale and business-focused telcos
  • Category 4: Challengers & disruptors
  • Category 5: Smaller national leaders
  • Conclusions and Recommendations

 

Full Article: Aligning M2M with Telco 2.0 Strategies

Summary: A review of Telenor, Jasper Wireless and KPN’s approaches to M2M,
examining how M2M strategy needs to fit with an operators’ future
broadband business model strategy. (October 2010)

NB A PDF copy of this article can be downloaded here.

M2M: escaping the cottage industry

The M2M (Machine-to-Machine) market, also known as “Embedded
Mobile”, has frequently been touted as a major source of future growth for the
industry. Verizon Wireless, for example, has set a target of 400% mobile
penetration, implying three embedded devices for each individual subscriber.
However, it is widely considered that this market is cursed by potential –
success always seems to be five years away. At this Spring’s Telco 2.0
Executive Brainstorm, delegates described it as being “sub-scale” and a
“cottage industry”.

Specific technical, operational, and economic issues have
driven this initial fragmentation. M2M is characterised by diversity- this is
inevitable, as there are thousands of business processes in each of tens of
thousands of sub-sectors across the industrial economy. As well as the highly
tailored nature of the applications, there is considerable diversity in
hardware and software products, and new products will have to coexist with many
legacy systems. These many diverse but necessary combinations have provided
fertile ground for the separate ‘cottage industries’.

As a result, it is conversely difficult to build scale,
despite the large total market size. Also, the high degree of specialisation in
each sub-market acts as a barrier to entry. Volume is critical, as typical
ARPUs for embedded devices are only a fraction of those we have come to expect
from human subscribers. This also implies that efficiency and project execution
are extremely important – there is little margin for error.  Finally, with so much specialisation at both
the application and device ends of the equation, it is hard to see if and where
there is much room for generic functionality in the middle. 

Special Technical and Operational Challenges

The technical problems are challenging. M2M applications are
frequently safety-critical, operations-critical, or both. This sets a high bar
in terms of availability and reliability. They often have to operate in
difficult environments. Information security issues will be problematic and new
technologies such as the “Internet of things”/Ubiquitous Computing will make
new demands in terms of disclosure that contradict efforts to secure the
system. An increasingly common requirement is for embedded devices to
communicate directly and to self-organise – in the past, M2M systems have
typically used a client-server architecture and guaranteed security by
isolating their communications networks from the wider world. The security
requirements of a peer-to-peer, internetworked M2M system are qualitatively
different to those of traditional Supervisory, Control, and Data Acquisition
(SCADA) systems.

One of the reasons for customer interest in self-organising
systems is that M2M projects often involve large numbers of endpoints, which
may be difficult to access once deployed, and the costs of managing the system
can be very high. How are the devices deployed, activated, maintained, and
withdrawn? How does the system authenticate them? Can a new device appearing on
the scene be automatically detected, authenticated, and connected? A related
problem is that devices are commonly integrated in industrial assets that have
much longer design lives than typical cellular electronics; computers are
typically depreciated over 3 years, but machine tools, vehicles, and other
plant may have a design life of 30 years or more.

This implies that the
M2M element must be repeatedly upgraded during its lifetime, and if possible,
this should happen without a truckroll. (The asset, after all, may be an
offshore wind turbine, in which case no-one will be able to visit it without using
a helicopter
.) This also requires that upgrades can be rolled-back in the
event they go wrong.

The Permanent Legacy Environment

We’ve already noted that there are a great variety of
possible device classes and vendors, and that new deployments will have to
co-exist with legacy systems. In fact, given the disparity between their
upgrade cycles and the design lives of the assets they monitor, it’s more
accurate to say that these devices will exist in a permanent legacy
environment.

Solution: The Importance of System Assurance

Given the complex needs of M2M applications, just providing
GPRS connectivity and modules will not be enough. Neither is there any reason
to think operators will be better than anyone else at developing industrial
process control or management-information systems. However, look again at the
issues we’ve just discussed – they cluster around what might be termed “system
assurance”. Whatever the application or the vendor, customers will need to be
able to activate, deactivate, identify, authenticate, read-out, locate,
command, update, and rollback their fleet of embedded devices. It is almost
certainly best that device designers decide what interfaces their product will
have as extensions to a standard management protocol. This also implies that
the common standard will need to include a function to read out what extensions
are available on a given device. The

similarities with the well-known SNMP (Simple Network
Management Protocol) and with USSD are extensive.

These are the problems we need to solve. Are there
technology strategies and business models that operators can use to profit by
solving them?

We have encountered a number of examples of how operators
and others have answered this question.

Three Operators’ Approaches

1.  Telenor:
Comprehensive Platform

Telenor Objects is a platform for handling the management,
systems administration, information assurance, and applications development of
large, distributed M2M systems. The core of the product is an open-source
software application developed in-house at Telenor. Commercially, Objects is
offered as a managed service hosted in Telenor’s data centres, either with or
without Telenor data network capacity. This represents concentration on the
system assurance problems we discussed above, with a further concern for rapid
applications development and direct device-to-device communication.

2.  Jasper:
Connectivity Broker.

Several companies – notably Jasper Wireless, Wyless plc.,
and Telenor’s own Connexion division – specialise in providing connectivity for
M2M applications as a managed service. Various implementations exist, but a
typical one is a data-only MVNO with either wholesale or roaming relationships
to multiple physical operators. As well as acting as a broker in wholesale data
service, they may also provide some specialised BSS-OSS features for M2M work,
thus tackling part of the problems given above.

3.  KPN:
M2M Happy Pipe

KPN (an investor in Jasper Wireless) has recently announced
that it intends to deploy a CDMA450 network in the Netherlands exclusively for
M2M applications. Although this is a significant CAPEX commitment to the low
margin connectivity element of the M2M market, it may be a valid option.
Operating at 450MHz, as opposed to 900/1800/1900MHz GSM or 2100MHz UMTS,
provides much better building penetration and coverage at the cost of reduced
capacity. The majority of M2M applications are low bandwidth, many of them will
be placed inside buildings or other radio-absorbing structures, and the low
ARPUs imply that cost minimisation will be significantly more important than
capacity. Where suitable spectrum is available, and a major launch customer –
for example, a smart grid project – exists to justify initial expenditure, such
a multi-tenant data network may be an attractive opportunity. However, this
assumes that the service-enablement element of the product is provided by
someone else – which may be the profitable element.

Finally, Verizon Wireless’s Open Development Initiative,
rather than being a product, is a standardisation initiative intended to
increase the variety of devices available for M2M implementers by speeding up
the process of homologating (the official term) new modules. The intention is
to create a catalogue of devices whose characteristics can be trusted and whose
control interfaces are published. This is not a lucrative business, but
something like it is necessary to facilitate the development of M2M hardware
and software.

Horizontal Enablers

These propositions have in common that they each represent a
different horizontal element of the total M2M system-of-systems –
whether it’s the device-management and applications layer, as in Telenor
Objects, a data-only MVNO such as Connexion or Wyless, or a radio network like
KPN’s, it’s a feature or capability that is shared between different vertical
silos and between multiple customers.

In developing horizontal enabler capabilities, operators
need to consider how to both drive development and growth of what is
effectively a new market and ensure that they are adding
value and that they are getting paid for it.   There is a natural tension between these
objectives.

The tension is between providing a compelling opportunity to
potential ecosystem partners (and in particular, offering them low cost access
to a large potential market) and securing a clear role for providers to extract
value (in particular, through differentiation).


Tensions between operators
and users

Linux: a case study

To explore operator options, we have looked to the
experience of Linux. This is an example of how the demands of a highly diverse
user base can be tackled through horizontalisation, modular design, and open
source development. Since the 1990s, the operating system has come to include a
huge diversity of specialised variants, known as distributions. These consist
of elements that are common to all Linux systems – such as one of the various
kernels which provide the core operating system functions, the common API,
drivers for different hardware devices, and a subset of a wide range of
software libraries that provide key utility programs – and modules specific to
the distribution, that implement its special features.

 For example, Red Hat
Enterprise Linux and OpenSUSE are enterprise-optimised distributions, CentOS is
frequently used for Asterisk and other VoIP applications, Ubuntu is a consumer
distribution (which itself has several specialised variants such as Edubuntu
for educational applications), Android is a mobile-optimised distribution,
Slackware and Debian exist for hardcore developers, Quagga and Zebra are
optimised for use as software-based IP routers, and WindRiver produces
ultra-low power systems for embedded use.

In fact, it’s probably easier to illustrate this than it is
to describe it. The following diagram illustrates the growing diversity of the
Linux family.

The evolution of Linux
distributions over time

The reason why this has been a) possible and b)
tolerable  is the horizontalised,
open-source, and modular nature of Linux. It could easily have been far too
difficult to do a version for minimal industrial devices, another for desktop
PCs, and yet another for supercomputers. Or the effort to do so could have
created a morass of highly incompatible subprojects

In creating a specialised distribution (or ‘distro’), it’s
possible to rely on the existing features that span the various distributions
and deal with the requirements they have in common. Similarly, a major
improvement in one of those core features has a natural source of scale, and
will tend to attract community involvement in its maintenance, as all the other
distros will rely on it. This structure both supports specialisation and
innovation, and helps to scale up support for the features everyone uses.

The Linux kernel – horizontal
specialisation in action

 

To recap, we think that M2M devices may be a little like
this – very different, but relying on at least a subset of the features in a
common specification. The Linux analogy is especially important given that a
lot of them are likely to use some sort of embedded Linux platform. Minimal
common features are likely to cluster around:

  • Activation/Deactivation – initial switch on of a
    device, provisioning it with connectivity, and eventually switching it off

  • Authentication – checking if this is the device
    it should be

  • Update/Rollback – updating the software and
    firmware on a device, and reversing this if it goes wrong

  • Device Discovery – detecting the presence of new
    devices

  • State Readout – get the current values for
    whichever parameters the device is monitoring

  • Location – where is the device?

  • Device Status – is it working?

  • Generic Event notification parameters – provide
    for notifications to and from devices that are specified by the user

This list is likely to be extended by device implementers
and software developers with device- and application-specific commands and data
formats, so there will also need to be a function to get a device’s interfaces
and capabilities. Technically, this has considerable commonality with formats
like USB, SNMP (Simple Network Management Protocol), SyncML, etc. – it’s
possible that these might be implemented as extensions to one of these
protocols.

For our purposes, it’s more interesting to note that these
functions have a lot in common with telcos’ own competences with regard to
device management, activation, OSS/BSS, and the SIM/USIM. Operators in general,
and specifically mobile operators, already have to detect, authenticate,
provision-on, update, and eventually end-of-life a diverse variety of mobile
devices. As much of this as possible must happen over-the-air and
automatically.

It is worth noting that Telstra recently announced their
move into the M2M market. Although they are doing so with Jasper Wireless as a
partner, the product (Telstra
M2M Wireless Control Centre
) is a Web-based self-service application for
customers to activate and administer their own devices.

The commercial strategies of Linux vendors

Returning to the IT world, it’s worth asking “how do the
Linux vendors make money?” After all, their product is at least theoretically
free. We see three options.

  • Option 1 – Red Hat, Novell

Both of these major IT companies maintain their own Linux
distribution (RHEL and OpenSUSE respectively, two of the most common enterprise
distros) and are very significant contributors of code to the core development
process. They also develop much application-layer software.

As well as releasing the source code, though, they also
offer paid-for, shrink-wrapped versions of the distributions, often including
added extras, and custom installations for major enterprise projects.

Typically, a large part of the commercial offering in such a
deal consists of the vendor providing technical support, from first line up to
systems integration and custom software development, and consulting services
over the lifetime of the product. It has been remarked that Linux is only free
if you value your own time at zero – this business model externalises the
maintenance costs and makes them into a commercial product that supports the
“free” element.

  •  Option 2 – IBM

Although IBM has long had its own proprietary Unix-like
operating system, through the 2000s it has become an ever more significant
Linux company – the only enterprise that could claim to be bigger would be
Google. Essentially, they use it as just another software option for their IT
consulting and managed services operation to sell, with the considerable
advantages of no upstream licence costs, very broad compatibility, and maximum
scope for custom development. In return, IBM contributes significant resources
to Linux, and to other open-source projects, notably OpenOffice.

  • Option 3 – Rackspace

And, of course, one way to make money from Linux is good
old-fashioned hosting – they call it the cloud these days. Basically, this
option captures any sort of managed-service offering that uses it as a core
enabler, or even as the product itself.

The big divide between the options, in the end, is the cost
of entry and the form it takes. If you aim to tackle Option 1, there is no
substitute for very significant investment in technical R&D, at least to
the level of Objects. Building up the team, the infrastructure, and significant
original technology is the entry ticket. Operators aren’t – with some
honourable exceptions – the greatest at internal innovation, so beware.

Telenor: flexibility through integration of multiple strategies

With Objects, Telenor has chosen this daring course.
However, they have also hedged their bets between the Red Hat/Novell model and
the managed-service model, by integrating elements of options 1 and 3. Objects
is technically an open-source software play, and commercially/operationally a
hosted service based in their existing data centre infrastructure. Its business
model is solidly based on usage-based subscription.

This doesn’t mean, however, that they couldn’t flex to a
different model in markets where they don’t have telco infrastructure –
offering technical support and consulting to third party implementers of the
software would be an option, and so would rolling it into a broader
systems-integration/consulting offering. In this way, horizontalisation offers
flexibility.

Option 2, of course, demands a significant specialisation in
IT, SI, and related trades.. This is probably achievable for those operators,
like BT and DTAG, who maintain a significant IT services line of business.
Otherwise, this would require a major investment and a risky change of focus.

Connectivity: needs a launch customer…

Option 3 – pure-play connectivity – is a commodity business
in a sector where ARPU is typically low. However, oil is also a commodity, and
nobody thinks that’s not a good business to be in. Two crucial elements for
success will be operations excellence – customers will demand high
availability, while low ARPU will constrain operators to an obsessive focus on
cost – and volume. It will be vital to acquire a major launch customer to get
the business off the ground. A smart grid project, for example, would be ideal.
Once there, you can sell the remaining capacity to as many other customers as
you can drum up.

Existing operators, like KPN, will have the enormous
advantage of being able to re-use their existing physical footprint of cell
sites, power, and backhaul, by adding a radio network more suited to the
demands of cheap coverage, building penetration, and relatively low bandwidth
demands, such as CDMA450 or WiMAX at relatively low frequencies.

Conclusion: M2M must fit into a total strategy

In conclusion, the future M2M market tends to map onto other
ideas about the future of operators. We identified three key strategies in the Future Broadband Business Models
strategy report
, and they have significant relevance here.

“Telco 2.0”, with its aim to be a highly agile development
platform, is likely to look to the software-led Option 1, and perhaps consider partnering
with a suitable player. They might license the Objects brand and make use of the
source code, or else come to an arrangement with Telenor to bring the product
to their customers as a managed service.

The wholesale-led and cost-focused  “Happy Pipe”, and its close cousin,
“Government Department”, is likely to take its specialisation in cheap,
reliable connectivity into a string of new vertical markets, picking
appropriate technology and looking for opportunities in the upcoming spectrum
auctions.

“Device Specialists”, with their deep concern for finding
the right content, brands, and channels to market are likely to pick Option 2 –
if they have a business like T-Systems or BT Global Services, they’ll integrate
it, otherwise they’ll partner with an IT player.

Telco 2.0 Further Reading

If you found this article interesting, you may also be interested in Enterprise 2.0 – Machine-to-Machine Opening for Business, a report of the M2M session at the last Telco 2.0 Executive Brainstorm, and M2M / Embedded Market Overview, Healthcare Focus, and Strategic Options, our Executive Briefing on the M2M market and the healthcare industry vertical.

Full Article: Telenor’s Voice 2.0 Strategy – ‘Mobilt Bedriftsnett’ Case Study

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.

Members can download a PDF of this Note here.

Introduction

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.

mb%20screenshot.jpg

It’s got to change, and here’s a start: Mobilt Bedriftsnett or the ‘Mobile Business Network’ from Telenor.

‘Telenor 2.0’

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.

mb%20mins%20change%20value%20dec%202009.jpg

…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.

call%20mins%20mb%20dec%202009.jpg

… 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.

Telenor’s ‘Mobile Enterprise Network’: Mobilt Bedriftsnett

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.

telefonkonferanse.jpg

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.

seven_questions_dec_2009.jpg

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.

MB_systems_dec%202009.jpg.png

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.