Telco 2030: New purpose, strategy and business models for the Coordination Age

New age, new needs, new approaches

As the calendar turns to the second decade of the 21^st century we outline a new purpose, strategy and business models for the telecoms industry. We first described ‘The Coordination Age’, our vision of the market context, in our report The Coordination Age: A third age of telecoms in 2018.

The Coordination Age arises from the convergence of:

Global and near universal demands from businesses, governments and consumers for greater resource efficiency, availability and conservation, and
Technological advances that will allow near their real-time management.

Figure 1: Needs for efficient use of resources are driving economic and digital transformation

Source: STL Partners

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A new purpose for a new age

This new report outlines how telcos can succeed in the Coordination Age, including what their new purpose should be, the strategies, business models and investment approaches needed to deliver it.

It argues that faster networks which can connect tens of billions of sensors coupled with advances in analytics and process digitisation and automation means that there are opportunities for telecoms players to offer more than connectivity.

It also shows how a successful telecoms operator in the Coordination Age will profitably contribute to improving society by enabling governments, enterprises and consumers to collaborate in such a way that precious resources – labour, knowledge, energy, power, products, housing, and so forth – are managed and allocated more efficiently and effectively than ever before. This should have major positive economic and social benefits.

Moreover, we believe that the new purpose and strategies will help all stakeholders, including investors and employees, realign to deliver a motivating and rewarding new model. This is a critical role – and challenge – for all leaders in telecoms, on which the CEO and C-suite must align.

To do this, telecoms operators will need to move beyond providing core communications services. If they don’t choose this path, they are likely to be left fighting for a share of a shrinking ‘telecoms pie’.

A little history 2.0

Back in 2006, STL Partners came up with a first bold new vision for the telecoms industry to use its communications, connectivity, and other capabilities (such as billing, identity, authentication, security, analytics) to build a two-sided platform that enables enterprises to interact with each other and consumers more effectively.

We dubbed this Telco 2.0 and the last version of the Telco 2.0 manifesto we published can be found here – we feel it was prescient and that many of the points we made still resonate today. Indeed, many telecoms operators have embraced the Telco 2.0 two-sided business model over the last ten years.

This latest report builds on much of what we have learned in the previous fourteen years. We hope it will help carry the industry forwards into the next decade with renewed energy and success.

Other recent reports on the Coordination Age:

Executive Summary
Introduction
Industry context: End of the last cycle
- The telecoms industry is seeking growth
- Society is facing some major social and economic challenges
- Addressing society’s (and the telecoms industry’s) challenges
The Coordination Age
- Right here, right now
- How would the Coordination Age work in healthcare, for example?
New opportunities for telcos?
- The telecoms industry’s new role in the Coordination Age
- Telcos need an updated purpose
- This will help to realign stakeholders
- A new purpose can be the foundation of new strategy too
- Investment priorities need to reflect the purpose
- New operational models will also follow
Conclusions: What will Telco 2030 look like?

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Strategy 2.0: The Six Key Telco 2.0 Opportunities

A summary of the six Telco 2.0 opportunities to transform telco’s business models for success in an IP-based, post PSTN world: Core Services, Vertical Solutions, Infrastructure Services, Embedded Communications, 3rd Party Enablers, and Own Brand OTT Services. It includes an extract from the Roadmap to New Telco 2.0 Business Models, updates on latest developments, and feedback from over 500 senior TMT industry execs. (July 2011, Executive Briefing Service, Transformation Stream).

Below is an extract from this 50 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 buy a Single User license for this report online here for £795 (+VAT) or subscribe here. For multiple user licenses, package deals to buy this report and the Roadmap report together, or to find out about interactive strategy workshops on this topic, please email contact@telco2.net or call +44 (0) 207 247 5003.

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Background – The Roadmap to New Telco 2.0 Business Models

The Telco 2.0 Strategy Report ’The Roadmap to New Telco 2.0 Business Models’ published in April 2011 examines ways in which operators can extend and solidify their roles in the future ecosystem, making themselves a cornerstone of a new structure. This Executive Briefing contains extracts from the full Strategy Report, and updates and validates it with feedback from recent Telco 2.0 and New Digital Economics Executive Brainstorms in EMEA and the Americas.

Updating the Telecoms Business Model

For the past four years, STL Partners has been using an iconic diagram (see Figure 1, below) to illustrate our views about the role of ‘two-sided’ business models in the telecoms industry. It highlights the critical role of a telecom operator in enabling interactions between its traditional end-user (“downstream”) customers and a variety of new “upstream” parties, such as application developers and media companies. In 2007, we also introduced the concept of “distribution” of Telcos’ core services through these upstream channels, with the addition of a range of value-added B2B services based around the inherent capabilities of the network and service platform.

This concept of two-sided business models originally introduced in the Telco 2.0 Strategy Report The $125Bn ‘Two-Sided’ Telecoms Market Opportunity has to a degree become synonymous with Telco 2.0, and has been widely embraced by the industry. We have now decided it is time to update our definition of “Telco 2.0” to reflect both business model evolution and fundamental changes in the telecoms industry structure itself. While these trends are indeed driving adoption of multi-sided business models, we have also observed that that are redefining the landscape for ‘traditional’ one-sided telecom model as well.

Figure 1: The high-level Telco 2.0 Business Model diagram

Source: STL Partners / Telco 2.0

Pressure on All Sides

In particular, it is critical to understand the increasing pressure on Telcos’ traditional markets and value propositions, on all sides – not just by Internet/media companies (so-called “over-the-top” players), but also by third-party infrastructure operators and wholesalers, network and device vendors, governments, and even end-users themselves. In addition, there have been delays and organisational complexities in exploiting the true potential of some “upstream” opportunities.

Newcomers such as Apple have developed their own communications/content ecosystems, regulators have pushed for structural separation, Governments have funded wholesale networks and application developers have cherry-picked lucrative domains such as social networking. Network equipment vendors are helping operators convert capex to opex – but in the process are themselves capturing more industry value through outsourcing. End-users have developed work-arounds to reduce their expenditure on telco services (e.g. “missed calls”).

Figure 2 – Telcos squeezed from all sides

Source: Telco 2.0, The Roadmap to New Telco 2.0 Business Models

Taken together, the impact of these trends has led Telco 2.0 to expand its framework to embrace and refine its target market domains for telcos, especially in terms of innovation around advanced new “retail” services. We feel that it is becoming even more difficult for operators to navigate through this minefield – and if they are to succeed, they will need to develop and sell more appropriate, integrated and well-designed offerings. While defensive moves have their place, there is also an urgent need to innovate – but with well-focused efforts and resources.

Originally, we spoke of three business model elements for telcos: Improved retail telecoms services; ‘Distribution’ of core telecom products and services through alternate upstream channels; and delivery to upstream customers of value-added enablers. (In the past, we did not explicitly address wholesale telco-telco services, as they were essentially “internal machinery” of the day-to-day retail business).

Figure 3 – The three opportunity areas in the original Telco 2.0 business model

Source: Telco 2.0, The $125Bn ‘Two-Sided’ Telecoms Market Opportunity

Introducing the New Telco 2.0 Framework

A long-term, strategic framework for is needed for telcos, both in fixed and mobile sectors. While the industry has strong cash flows, it needs to redefine its own space, exploit its strengths, and seek out areas of revenue growth and strong differentiation. Telcos also need to look for sources of their own profit in areas such as managed services, rather than just exploiting the cost savings offered by vendors and outsourcers.

Figure 4 – The New Telco 2.0 Industry Framework

Source: Telco 2.0, The Roadmap to New Telco 2.0 Business Models

Our new framework is an evolution of the old, incorporating the two-sided model, and defining six opportunity types, comprising three existing types previously defined by Telco 2.0:

Core services (previously ‘Enhanced retail’), which encompasses structural and strategic improvements to existing wholesale and retail services;
Embedded Communications (previously ‘Distribution platform’);
Third-party business enablers (previously ‘B2B VAS platform’);

and extending it in three main directions:

A separated and richer tier of Infrastructure services;
Explicitly identifying the integration of telecoms, IT and networking being undertaken by operators in the corporate space – Vertical industry solutions (SI)
Own-brand OTT services.

The Six Telco 2.0 Opportunity Types

We have grouped the opportunities into six types shown in the following diagram and discussed further in the rest of this report.

Figure 5 – the Six Telco 2.0 Opportunity Types

Source: Telco 2.0, The Roadmap to New Telco 2.0 Business Models

1. Core services (previously Retail Services), which encompasses transformational structural and strategic improvements to existing mainstream “Telco 1.0” offerings such as subscriptions, telephony and broadband access. These will remain at the core of telco revenues irrespective of other shifts, enhanced by the smart and targeted delivery of improved offers, manifesting in benefits via revenue addition, up-sell, and customer satisfaction. Our research identifies a portfolio of approaches here, such as:

Incremental improvements to basic products’ quality or speed;
Exploitation of new device categories driving service adoption and usage;
Supply of added-value content and services;
Better segmentation and customisation;
More targeted, personalised and granular pricing;
Better channels to market;
Efforts to gain improved (and genuine) loyalty and value perception;
Innovative ways to drive incremental usage and spending, for example through incentives and promotions.

In parallel with the revenue drivers, operators are also focusing on cost savings, throughout network operations and other areas such as retail channel costs and commissions, device subsidies and so forth.

2. Vertical industry solutions have been developed by fixed operators over the last decade and now starting to be demanded by customers for mobile solutions too. They comprise telephony services (voice and data) being integrated with IT with the operator acting in a systems integrator role to provide a complete solution. These solutions are tailored and packaged for specific vertical industries – transport, logistics, banking, government, manufacturing, utilities, etc. Companies such as BT (with BT Global Services), Orange (with Business Services) and Deutsche Telekom (with T-Systems) are examples of companies that have moved aggressively into this area.

3. A separated and richer tier of Infrastructure services, which includes telecom capacity “bulk” wholesale, as well as more granular “distribution” two-sided business models and aspects of hosting/cloud services. Some of these offerings have been around for a long time – bitstream ADSL, unbundled local loop sales and so forth. Others (data MVNOs, wholesale wireless networks) are relatively new. At the same time, operators are cutting new deals with each other for network sharing, backhaul provision, national roaming and so forth. We are splitting the new services out in this category, as a reflection of their impact on the cost side of operators’ business models, and new regulatory regimes (such as open access) that are redefining industry structure in many markets.

4. Embedded communications (previously Distribution Platform) – essentially the delivery to consumers of basic telecom services, primarily voice telephony, SMS and broadband data access, through new routes such as application-embedded functions or devices which “come with data” pre-provisioned.

5. Third-party Enablers (previously B2B VAS Platform) – the provision of extra capabilities derived from the operator’s ’platform’ rather than just network transport. This includes functions such as billing-on-behalf, location, authentication and call-control, provided as basic building blocks to developers and businesses, or abstracted to more complex and full-featured enablers (for example, a location-enabled appointment reminder service). Another class of third-party enablers originates in the huge customer databases that Telcos maintain – in theory, it should be possible to monetise these through advertising or provision of aggregated data to 3rd parties – subject to privacy constraints.

6. Own-brand OTT services. Many operators are starting to exploit the scale of the wider Internet or smartphone universe, by offering content, communications and connectivity services outside the perimeter of their own access subscriber base. With a target market of 1-2bn people, it is (in theory) much easier to lower per-unit production costs for new offerings and gain “viral” adoption. It avoids the politics and bureaucracy of partnerships and industry-wide consortia – and potentially has the ‘pot-of-gold’ of creating huge value from minimal capital investment. On the downside, the execution risks are significant – as is the potential for self-cannibalisation of existing services.

Figure 6 – The Six Opportunity Areas – Strategy, Typical Services and Examples

Source: Telco 2.0, The Six Opportunity Types Executive Briefing

To read the report in full, including the following contents…

Introduction & Background
The Roadmap to New Telco 2.0 Business Models
Updating the Telecoms Business Model
Executive Summary
Introducing the New Telco 2.0 Framework
Summary: The Six Telco 2.0 Opportunity Types
New Developments and Feedback from Telco 2.0 and New Digital Economics Brainstorms
Relative Attractiveness of Opportunity Areas
Different Opportunities need Different Business Models
The Unwelcome Need to Increase Investment in Innovation
New Metrics to Unlock New Investment
A Common Theme: Time is Short
Next Steps – M-Commerce 2.0: how Personal Data will Revolutionise Customer Engagement
The Six Opportunity Types Described
Opportunity Type 1: Core services
Opportunity Type 2: Vertical industry solutions (SI)
Opportunity Type 3: Infrastructure services
Opportunity Type 4: Embedded communications
Opportunity Type 5: Third-party business enablers
Opportunity Type 6: Own-brand “OTT”
Index

…with the following figures, charts and tables…

Figure 1 – The high-level Telco 2.0 Business Model diagram
Figure 2 – Telcos squeezed from all sides
Figure 3 – The three opportunity areas in the original Telco 2.0 business model
Figure 4 – The New Telco 2.0 Industry Framework
Figure 5 – the Six Telco 2.0 Opportunity Types
Figure 6 – The Six Opportunity Areas – Strategy, Typical Services and Examples
Figure 7 – Americas 2011: What will be the impact of Telco 2.0 Growth Opportunities?
Figure 8 – EMEA Nov 2010: B2B Enabling Services and Distribution Platform Need Investment
Figure 9 – Each Opportunity Area will have Different Revenue Splits
Figure 10 – Operators must invest more in services
Figure 11 – Different Business Models Need Different Metrics
Figure 12 – Impact of New Business Models on CROIC
Figure 13 – Other than “being a pipe”, Telcos have the most time and Opportunity to address Identity & Authentication Control Points
Figure 14 – Customer Data and Mobile Money are CSP’s most under exploited Assets?
Figure 15 – 100% campaign gain from personalisation
Figure 16 – Closed-loop of customer relationships & loyalty
Figure 17 – Ericsson’s Mobile Broadband ‘Fuel Gauge’
Figure 18 – BT Global Services vertical industry approach
Figure 19 – Many regulators see wholesale as key to NGA success
Figure 20 – Three Different Types of Embedded Communications
Figure 21 – Broadband access market forecast 2005-2015
Figure 22 – ‘Comes with Connectivity’
Figure 23 – Distribution and Enablers Vs Ontology of Telco wholesale and VAS offerings
Figure 24 – What is the best revenue model for Telco API programmes?
Figure 25 – Skype is a good fit for many Microsoft products
Figure 26 – Telco strategy options for co-opetition with Skype
Figure 27 – The Seven ‘VAS Platform’ Applications / 3rd Party Business Enabler Areas
Figure 28 – 5 Strategic Options for Developing OTT Services

……Members of the Telco 2.0 Executive Briefing Subscription Service and the Telco 2.0 Transformation Stream can download the full 50 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for £795 (+VAT), or for multi-user licenses and any other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

Organisations and products referenced: 3UK, Alcatel-Lucent, Amazon, Amazon Kindle, Android, Apple, AT&T, BlackBerry, BT, BT Global Services, Carphone Warehouse, Cisco, Clearwire, Deutsche Telekom, Equant, Facebook, FCC, Gamesload, Google, Harbinger/SkyTerra network, iPad, iPhone, Jajah, KDDI, LightSquared, LinkedIn, Microsoft, Musicload, O2, Ofcom, Openzone, Optism, Orange, ProgrammableWeb, Qualcomm, Revoo, Scout24 family, Skype, smartphones, SMS, Softwareload, Telefonica, T-Mobile, UQ, Verizon, Videoparty, Vodafone, W3C, Xiam, YouTube.

Technologies and industry terms referenced: 3G, 4G, ADSL, API, appstore, authentication, B2B VAS platform, backhaul, billing-on-behalf, bitstream ADSL, broadband data access, Bulk wholesale, cable, cloud, Comes with data, Core services, CRM, data centres, Embedded Communications, femtocells, fibre, freemium, GSM, healthcare, Identity, Infrastructure services, location, LTE, M2M, managed services, messaging, MiFi, MVNO, MVNOs, Net Neutrality, NGA, NGN, own-brand OTT, Own-brand OTT, pipe, platforms, QoS, R&D, Retail, Sender pays, SIM, slice and dice, smart grids, Third-party business enablers, two-sided, unbundled local loop, Vertical industry solutions, voice telephony, VoIP, wholesale wireless networks, WiFi, WiMAX.

New Strategy Report: Mobile, Fixed and Wholesale Broadband Business Models

Best Practice Innovation, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios

Summary: a new 249 page Telco 2.0 Strategy Report on the future of broadband, including analysis of the latest new ideas in broadband business model innovation, new ‘Telco 2.0’ Opportunities, global forecasts, four future strategic scenarios, and a detailed ‘Use Case’ describing a new Managed Offload ‘Use Case’. (March 2010, Future Networks Stream)

The report covers:

Best practice innovation, and detailed assessment of ‘Telco 2.0′ opportunities, in Mobile Broadband, Advanced New Wholesale, and Fixed Retail Broadband Business Models
Four scenarios for broadband market players: ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’
Telco 2.0’s forecasts for the Broadband Access market
An advanced and detailed ‘Use Case’ for a specific Telco 2.0 Opportunity, ‘Managed Offload of Mobile Broadband to Fixed Networks’
Conclusions and recommendations for Telcos and other Broadband Service providers (BSPs) and their partners

The report is a ‘must read’ for CxOs, strategists and broadband product managers seeking to develop their business strategies and position their products, both within Telcos and BSPs and for the community of business partners and vendors.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here.

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003

Report Details

249 pages
90 charts, tables and forecasts
Manuscript format
Detailed outline and contents below
Published: 25th March 2010

The rest of this page contains:

Overview and Report Content
Who is the report for?
Contents, Figures and Forecasts
Downloads (Table of Contents, PDF Version of this Page)
Fit with other Broadband Reports

Report Overview & Content

Introduction

Broadband continues to grow in both market penetration and sophistication, with the addition of fibre and mobile access as key enablers.

Figure 1. Global broadband access lines, 2000-2020

personal%20mobile%20growth%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

However, while speeds and mobility are improving, there are complex challenges to the business model for service providers. These include:

Maturing products and business models
Convergence of fixed and mobile technology and product offerings
Greater state intervention in deploying and controlling broadband access
A more complex broadband ecosystem
New consumer behaviour and higher expectations

See here for an extract from the overview of the report on the main themes and challenges that it addresses. Among these challenges are:

What are the realistic prospects for non-subscription models for fixed and mobile broadband, such as prepaid / transactional / free / “comes with data”, bundled with device purchase, “sliced and diced”, etc.?
A critical analysis of whether operators can charge content / Internet companies for access to ‘their pipes’, and in what circumstances this may be commercially and operationally feasible.
What is the changing role of Government in the broadband marketplace?
Is Mobile Broadband substitional or synergistic with Fixed?

Overall, new business models will be necessary to help justify extra infrastructure investment as end-user spending on broadband access reaches market saturation.

Figure 2: Next-generation broadband will need new revenue sources

fbbm%20four%20skittles%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

The report covers the impact of key factors such as DPI, QoS. Net Neutrality, LTE, Fibre, IPTV, Video demand, mobile broadband, convergence, LLU, MVNOs, Machine-to-Machine, Cloud Computing, and regulation. It explores both developed and developing markets.

Broadband Best Practice Innovation and ‘Telco 2.0′ Opportunities

Following the introduction and market overview, the report contains chapters of detailed analysis of best practice innovation (e.g. pricing, propositions, technologies, etc.) and ‘Telco 2.0′ new business model opportunities in:

Fixed Retail Broadband
Mobile Retail Broadband
Advanced Wholesale Broadband business models.

The ‘Telco 2.0′ propositions are based on the ‘two-sided’ telecoms business model theory that broadband capacity can sold to “upstream” media or application providers. The report examines theoretical use cases and some compelling potential business models.

Figure 3: the Two-Sided Telecoms Business Model
2sbm%20fbbm%20report%20mar%2023%202010.png

Source: Telco 2.0 Analysis

(NB. Further detail on the ‘two-sided’ telecoms business model can be found here.)

‘Managed Mobile Offload’ Use Case

Taking one of the specific opportunities identified, the report details a ‘Use Case’ for offloading excess mobile traffic to fixed operators. This represents a wholesale opportunity for fixed BSPs and an opportunity for Mobile BSPs to manage the rising costs of carrying large volumes of (primarily video) data traffic.

Figure 4: Forms of managed offload from fixed/cable operators

fbbm%20offload%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Future Scenarios

The report describes four possible scenarios for broadband service providers and the benefits and risks of pursuing each strategy.

Figure 5: Potential scenarios for BSPs

fbbm%20four%20scenarios%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Forecasts and Conclusions

The report is completed by global forecasts for each of the core business models for broadband service providers (detailed below), conclusions, and an overview of the relative attractiveness of the scenarios.

Who is the report for?

Telecoms Operators’ and other Broadband Service Providers’:

Strategy departments
Central research libraries & market research functions
CTO office, Strategic Marketing, Business Development
Wholesale Departments
Government & Regulatory Affairs depts
Network architects & planners
Broadband services marketing departments (fixed, cable and mobile)

Vendor audiences:

Marketing / business development / strategy functions
Fixed broadband access equipment vendors
Wireless network radio & transport vendors
IP core suppliers
Fixed-broadband terminal suppliers
Mobile broadband device suppliers
Policy management, DPI & control specialists
Billing & OSS suppliers
Silicon and “enabler” providers

Regulators and other Government departments

Investors

Consultants & integrators

Report Contents

Executive Summary

Part 1: Background to the Broadband Industry

Market adoption of broadband and the four scenarios
Fibre and next-generation access: the missing business model
Video: killer app, or network-killer?
Mobile broadband: Hype & realism
Convergence of fixed / mobile broadband
Evolving regulation: help or hindrance?
Government & ‘National Broadband’
Broadband in the developing world
The vendor landscape

Part 2: Fixed retail broadband business models

Retail broadband scenario options
Cable vs ADSL vs Fibre – same models, or fundamentally different?
Pricing options: capping and tiering, application-specific caps and tiers, specific zero-rated / unmetered sites & services
Video: providers: the power-brokers? Triple-play / IPTV.
Incremental services, cross-network Internet services, prepay fixed broadband
Fibre
Future value-add services? Smart grids, telemedicine and ‘The Cloud’
The impact of local-loop unbundling and structural separation

Part 3: Mobile Broadband Retail Business Models

Mobile broadband computing
Smartphone business models
M2M broadband business models
Do revenues reflect costs?
Wholesale mobile broadband and MVNOs
Enablers and technologies

Part 4: Advanced broadband wholesale business models

Bulk broadband wholesale models
Creating next-gen wholesale
Telco-Telco wholesale 2.0
Broadband capacity ‘slice and dice’
Marketing & selling wholesale

Part 5: Use Case: Managed Offload of Mobile Broadband

Part 6: Forecasts and Conclusions

A full table of contents and figures can be downloaded here.

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003

Key Figures and Forecasts

Global broadband access lines, 2000-2020
Global broadband access lines by technology, 2005-10
Global fixed broadband by region, mid-2009
Global broadband traffic
Ultra-fast broadband availability in developed markets
Global mobile broadband computing users
Examples of government broadband-related stimulus plans
How uptake of broadband impacts GDP
Global fixed broadband lines
Wholesale within global fixed broadband, 2010
The Global Online Video Market ($Billions)
European fibre penetration forecast 2013
Mobile broadband active user base
Global 3G data traffic by device type, mid-2009
Global mobile broadband computing users
Vodafone UK mobile broadband pricing trends
Traffic volumes for mobile broadband vs. revenues
Fixed and mobile broadband wholesale revenues
Global mobile broadband computing subscribers
Forecast broadband wholesale revenues by category
Global retail broadband subscribers 2005-2020
Global average retail charges for broadband 2005-2020
Broadband Retail Market Value 2005-2020
Percentage of broadband lines supplied via bulk wholesale 2005-2020
Average global wholesale prices 2005-2020
Global bulk wholesale access market 2005-2020
Global slice-and-dice revenues per line 2005-2020
Global slice-and-dice incremental wholesale access revenues 2005-2020
Global active users of broadband without a subscription 2005-2010
Active broadband users including ‘comes with data’
Global non-subscription upstream revenues per user per year 2005-2020
Global ‘comes with data’ broadband access 2005-2020
Global wholesale revenues 2005-2020
Global broadband access market 2005-2020
Breakdown of global wholesale revenues 2005-2020

Downloads

A full table of contents and figures in PDF format can be downloaded here.
A PDF version of this page in full can be downloaded by our Future Networks Stream Subscribers here.

Fit with other Telco 2.0 Broadband Reports

This report is one of the Future Broadband Business Models Report Series of in-depth analyses of the Broadband market.

Companion Reports:

“Beyond bundling: winning the new $250Bn delivery game” examines the structural opportunities and potential technical strategies for the next 10 years, including the more infrastructure-oriented aspects of wholesale such as IP data transit, renting-out of fibre/towers and local-loop unbundling, and identifies an overall $250Bn opportunity over this period.
“The impact of video on broadband business models” analyses the development of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of Broadband Service Providers is examined, possible threats and opportunities revealed, and strategic options are discussed.

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003

Mobile & Fixed Broadband Business Models: Four Strategy Scenarios

Summary: an introduction to the four strategy scenarios we see playing out in the market – ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’ – part of a major new report looking at innovation in mobile and fixed broadband business models. (March 2010, Foundation 2.0, Executive Briefing Service, Future of the Networks Stream).

Introduction

This is an extract from the Overview section of the Telco 2.0 report ‘Mobile and Fixed Broadband Business Models: Best Practice, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios‘.

The extract includes:

Overview of the three macroscopic broadband market trends
The five recurrent themes
Defining Telcos and Broadband Service Providers (BSPs) in the future
Market adoption of broadband
An Introduction to the four scenarios

A PDF version of this page can be downloaded here.

Overview

This section of the report provides a backdrop to the rest of the study. It highlights the key trends and developments in the evolution of broadband, which fundamentally underpin the other aspects of business model innovation discussed in the subsequent chapters. It also introduces Telco 2.0’s main ‘end-game scenarios’ for broadband service providers (BSPs), and gives a round-up of some of the key background statistics.

There are three main macroscopic trends in the broadband market:

1. A focus on improving the reach and profitability of existing low/mid-speed broadband in developed countries, especially with the advent of inexpensive mobile data, and new methods of monetising the network through wholesale options, value-added services and better segmentation;

2. Deployment of next-generation very high-speed broadband, and the building of business models and services to support this investment, typically involving video services and/or state backing for nationally-critical infrastructure projects;

3. Continued steady rollout of broadband in developing markets, balancing theoretical gains in social and economic utility against the practical constraints of affordability, PC/device penetration and the need for substantial investment.

Cutting across all three trends are five recurrent themes:

Maturing products and business models

The global broadband market is maturing fast. In developed countries, baseline penetration rates are starting to level off as saturation approaches. Coupled with price erosion and increasing capacity demands, this deceleration is pressuring margins, especially in the recession;
The pivotal role of video in driving both costs and revenues, given its huge requirement for bandwidth, especially in high-definition (HD) format.
An awareness of the need for retail and wholesale business model evolution, as revenue growth plateaus and current attempts at bundling voice and/or IPTV (fixed) or content (mobile) show only patchy success.

Convergence of fixed and mobile technology and product offerings

The impact of mobile broadband, either as a substitute or a complement to fixed broadband. This goes hand-in-hand with the advent of more powerful personal devices such as smartphones and netbooks.

Greater state intervention in deploying and controlling broadband access

Intensifying regulation, focusing on areas such as facilities and service-based competition, unbundling and structural separation, Net Neutrality, spectrum policy and consumer advocacy;
Increasing government intervention in areas, such as broadband roll-out and strategy, outside the (traditional) scope of the regulatory authorities. This is conducted either through subsidy and stimulus programmes, or broader initiatives relating to national efforts on energy, health, education and the like;
A growing belief that broadband networks should also support ‘infrastructure’ services which may not be delivered by the public Internet – for example, remote metering and ‘smart grid’ connectivity, support for healthcare or e-government, or education services. A major battle over the next 10 years will be whether these are delivered as ‘Telco services’, ‘Internet services’ or as distinct and separately-managed network services by providers using wholesale access to a Telco network.

A more complex broadband ecosystem

The increasing role of major equipment vendors in facilitating new business models, either through managed services / outsourcing / transformation, direct engagement with governments on strategic architecture issues, or supply of key ‘platform’ components. However, many vendors are torn between protecting the legacy heavily-centralised models of their existing Telco customers, and exploring new targets within public-sector or Internet domains.

New consumer behaviour and higher expectations

Changing user behaviour as broadband becomes a basic expectation (or a government-mandated right) rather than a premium service, with the mass uptake of new applications and the added benefits of mobility.

Defining Telcos and BSPs in the future

One of the largest challenges in identifying Telco business models for the forthcoming era of next-generation access is the question of what actually defines a Telco, or a Broadband Service Provider (BSP).

In fixed networks, especially with new fibre deployment, the situation is becoming ever more complex because of the number of levels at which wholesaling can take place. If an incumbent ADSL operator buys, packages and rebrands wholesale dark fibre capacity from a municipally-owned fibre network, which one is the BSP? Or are they both BSPs?

The situation is a lot easier in mobile, where there still remains a fairly clear definition of a mobile operator, or a mobile virtual network operator (MVNO) – although in future network-sharing and outsourcing may also blur the boundaries in this market.

It is possible that there isn’t an appropriate strict definition, so a range of proxy definitions will start to apply – membership of bodies like the GSMA, possession of a ‘mobile network code’, access to certain number ranges, ownership of spectrum and so forth. In an era where Google buys dark fibre leases, Ericsson manages cellular networks, investment consortia contract to run a government-sponsored infrastructure and mobile operators offer ‘over the top’ applications – it all becomes much less clear.

In this report, BSPs are taken as a broad class to include:

Owners of physical broadband access network infrastructure – taken as either physical cabling or fibre (wireline) or spectrum and radio cells (mobile). Telco 2.0 does not include rights-of-way owners or third-party cell-tower operators in this definition;
Owners of broadband access networks built using wholesale capacity on another provider’s wires or fibres, but with their own active electronics, E.g. basing a network on unbundled loops or dark fibre;
Providers of retail broadband access, perhaps bundled with other services, using bitstream, ethernet access or MVNO models based on wholesale from another network operator.

These definitions exclude 2G-only (non-broadband) mobile operators and MVNOs, PSTN or cable TV access provided without broadband connectivity and non-retail access providers, such as microwave backhaul operators and content delivery networks (CDNs) Etc.

Market adoption of broadband

The global broadband access market has grown from fewer than 10 million lines in 1999, to more than half a billion at the end of 2009, predominantly through the growth of DSL-based solutions, as well as cable and other technologies. Although growth has started to slow in percentage terms, there remains significant scope for more homes and businesses to connect, especially in developing economies, such as China. Older fixed broadband services in more industrialised economies will gradually be replaced with fibre.

The other major area of change is in wireless. Since 2007, there has been rapid growth, with the uptake of mobile broadband for ‘personal’ use with either smartphones or laptops, often in addition to users’ existing fixed lines. This category of access will grow faster than fixed connections, reaching more than one billion active individual users and almost two billion devices by 2020 (see Figure 1). Although a strong fixed/mobile overlap will remain, there will also be a growing group of users whose only broadband access is via 3G, 4G or similar technologies.

There are a number of complexities in the data:

Almost all fixed broadband connections are ‘actively used’. The statistics do not count copper lines capable of supporting broadband, but where the service is not provisioned;
Conversely, many notional ‘mobile broadband’ connections (E.g. 3G SIMs in HSPA-capable devices) are, in fact, not used actively for high-speed data access. The data in this report attempts to estimate ‘real’ users or subscribers, rather than those that are theoretically-capable, but dormant;
At present, most broadband usage is based on subscriptions, either through monthly contracts or regular pre-paid plans (mostly on mobile). Going forward, Telco 2.0 expects to see may non-subscription access customers who have either temporary accounts (similar to the WiFi single-use model) or have other forms of subsidised or bundled access as described later in the report;
Lastly, the general assumption is that fixed broadband can be shared by multiple people or devices in a home or office, but mobile broadband tends to be personal. This is starting to change with the advent of ‘shared mobile access’ on devices like Novatel’s MiFi, as well as the use of WiMAX and, sometimes, 3G broadband for fixed wireless access.

Figure 1. Global broadband access lines, 2000-2020

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Source: Telco 2.0 analysis

Breaking the data out further shows the recent growth trends by access type (see Figure 2). Mobile use has exploded with the growth of consumer-oriented 3G modems (dongles) and popular smartphones, such as the Apple iPhone and various other manufacturers’ recent devices. DSL growth has continued in some markets, such as Eastern Europe and China. Conversely, cable modem growth, entrenched in North America, has been slow as there has been limited roll out of new cable TV networks.

Figure 2: Global broadband access lines by technology, 2005-10

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Source: Telco 2.0 analysis

It is important to note the importance of Asia in the overall numbers (see Figure 3). Although many examples in this report focus on developed markets in Europe and North America, it is also important to consider the differences elsewhere. Fibre is already well-established in several Asian markets, such as Japan and Singapore, while future growth in markets, such as India, may well turn out to be mobile-driven.

An alternative way of looking at the industry dynamics is through levels of data traffic. This metric is critically important in determining future business models, as often data expands to fill capacity available – but without a direct link between revenue and costs. In future, fixed broadband access will start to become dominated by video traffic. Connecting an HDTV display directly to the Internet could consume 5GB of data per hour, orders of magnitude above even comparatively-intense use of PC-based services, such as YouTube or Facebook.

Figure 3: Global fixed broadband by region, mid-2009

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Source: Broadband Forum

The dynamics of mobile traffic growth (see Figure 4) are somewhat different, and likely to be dominated by a sustained rise in the device/user numbers for the next few years, rather than specific applications. Nevertheless, the huge ramp-up in aggregated data consumption will put pressure on networks, especially given probable downward pressure on pricing and the natural constraints of cellular network architectures and spectrum. The report looks in depth at the options for ‘offloading‘ data traffic from cellular devices onto the fixed network.

Figure 4: Global broadband traffic

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Source: Cisco Systems

Note: EB = Exabyte. 1 Exabyte = 1,000 Petabytes = 1 million Terabytes

The Four Scenarios

Given the broad diversity of national markets in terms of economic development, regulation, competition and technology adoption, it is difficult to create simplistic categories for the BSPs of the future. Clearly, there is a big distance between an open access, city-owned local fibre deployment in Europe versus a start-up WiMAX provider in Africa, or a cable provider in North America.

Nevertheless, it is worth attempting to set out a few scenarios, at least for BSPs in developed markets for which market maturity might at least be in sight (see Figure 5 below). While recognising the diversity in the real world, these archetypes help to anchor the discussion throughout the rest of the report. The four we have explored (and which are outlined in summary below) are:

Telco 2.0 Broadband Player
The Happy Piper
Government Department
Device specialist

There are also a few others categories that could be considered, but which are outside the scope of this report. Most obvious is ‘Marginalised and unprofitable’, which clearly is not so much a business model as a route towards acquisition or withdrawal. The other obvious group is ‘Greenfield BSP in emerging market’, which is likely to focus on basic retail connectivity offers, although perhaps with some innovative pricing and bundling approaches.

It is also important to recognise that a given operator may be a BSP in either or both mobile and fixed domains, and possibly in multiple geographic markets. Hybrid operators may move towards ‘hybrid end-games’ in their various service areas.

Figure 5: Potential scenarios for BSPs

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Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

For more details on the scenarios, please see the new Telco 2.0 Strategy Report ‘Mobile and Fixed Broadband Business Models – Best Practice Innovation, ‘Telco 2.0’ Opportunities, Forecasts and Future Scenarios‘, email contact@telco2.net, or call +44 (0) 207 247 5003.

Full Article: New Opportunities in Online Content Distribution

Summary: as part of our new ‘Broadband End-Games’ report, we’ve been defining in detail the opportunities for telcos to distribute 3rd party content and digital goods in new ways.

You can download a full PDF copy of this Note here.

Introduction

Telecoms operators have traditionally retailed their services to consumers, businesses, not-for-profit and public sector organisations. Carriers have also resold services to other operators as wholesale services (including regulated services such as interconnection).

At the Telco 2.0 initiative, we have long argued that there is an opportunity for telecoms operators to develop a new “2-sided” revenue stream, broadly divided into B2B VAS platform revenues and Distribution revenues. These services enable third party organisations in multiple vertical sectors to become much more effective and efficient in their everyday interactions and business processes. We have valued the potential to Telco’s’ at 20% of additional growth on core revenues in ten years’ time…. if they take-up the opportunity.

Figure 1: 2-sided business model framework

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As Telco 2.0 concepts gain acceptance, we are being asked by operators to provide greater detail on both the B2B VAS Platform and Distribution opportunities. Operators are looking to quantify these in specific geographies. To this end, we have described the B2B VAS platform opportunity extensively, in particular in the 2-sided Business Model Platform Opportunity strategy report.

Also, we have modelled Distribution revenues for fixed and mobile broadband distribution and provided detailed commentary in our strategy report on Future Broadband Business Models. We have extended this work to cover Distribution using narrowband, voice and messaging. This Analyst Note provides a synthesis of this modelling work and an updated description of the Distribution revenue opportunity. A forthcoming Analyst Note will cover Sizing the 2-sided Distribution Opportunity for Telco.

Defining 2-sided distribution

Telecoms, historically focused on providing interpersonal communications, has increasingly become an electronic transport and delivery business. In defining the “distribution” element of 2-sided business opportunity, we highlight four criteria:

The distribution service is essentially concerned with moving electronic data from one location to another. Distribution revenues relate to this alone. The terms ‘upstream’ provider and ‘downstream’ customer relate to the commercial relationship and not to the flow of data. Distribution services can apply to moving data in either or both directions.
The service may include an ‘above-standard’ technical specification and quality of service to meet specific performance requirements, generally associated with the nature of the application for which the data is being sent.
The service is being paid for by the upstream third-party provider, but is often initiated by the downstream customer.
The distribution service is a minor telecoms component of the primary non-telecoms service or goods being accessed by the downstream user. Mostly, the distribution service is enabling interaction between the upstream third-party provider and downstream customer. For example, a Kindle user is paying Amazon for an e-book that is delivered over a network. Amazon pays the telecoms operator (in the US, this was Sprint and is now AT&T) for the delivery of the e-book (the main non-telecoms product).

This last criterion makes a distinction between two-sided distribution and wholesale telecoms (and carrier interconnection). This is a key distinction, as it highlights an underlying industry-level difference in business model and a move away from a closed Telco system to a more open platform. Operators that do not significantly compete in the same retail market as their wholesale customer(s) may not consider this distinction important. This is because they do not consider their wholesale customer(s) to be competition, but rather a channel. However, wholesale customers nearly always compete at some level. Furthermore, this is missing a key point: 2-sided distribution is about “growing the pie” for Telco whereas growing wholesale in a mature market, generally results in “shrinking the pie”.

There is a “grey area” between 2-sided distribution and carrier wholesale. Offloading mobile broadband onto fixed broadband networks is an example of Wholesale2.0, since it is primarily an inter-carrier arrangement intended to reduce mobile network costs. In most cases however, it is still possible to make a clear distinction, as illustrated in the final two examples in Figure 2.

Figure 2: Examples of 2-sided Telco distribution

Example	Description	Comment
Freephone	Callers use freephone services to access goods or services from upstream third-party provider. Although they could achieve this through a retail call, the upstream third-party provider pays for the freephone call as part of their overall proposition around their main service or product, which the downstream customer is ultimately accessing.	The actual freephone call charges (excluding ‘B2B VAS platform’ charges for number provisioning, directory listing, or any inbound call handling features) are Telco distribution revenue because they relate to enabling an interaction (by carrying a voice conversation) that has been initiated by the downstream party, but paid for by the upstream third-party party in order to deliver something else. This ‘something else’ main service could be booking a flight, ordering a pizza, calling the army recruitment centre or enquiring about installing loft insulation.
Premium SMS (carriage-only)	A premium SMS is a service offered by Telcos to upstream third-party providers that enables them to provide a service or goods to downstream users. Although the telco may be billing for this, it is not the Telco’s service that the end user is buying. This is therefore not retail (one-sided) revenue, unless the Telco is also the upstream third-party content provider.	Premium services include a host of B2B VAS services (notably payment and collection). The charges levied by Telcos therefore include a combination of distribution and B2B VAS. The distribution element relates to the pure SMS transport (carriage only) at normal bulk rates, not the full or even net SMS revenues.
TwitterPeek	TwitterPeek is a dedicated device offered by Twitter through Amazon, which gives users unlimited access to their Twitter account and the associated functions (Send Tweets, subscribe to others’ Tweets, Retweet, search Tweets, etc.. The service costs $99 for six months followed by $7 a month. There is also a $199 option for lifetime use.	In this example, the main service is Twitter. The connectivity service that supports TwitterPeek, is considered to be 2-sided distribution rather than wholesale because it does not directly compete with any core telco communications offering.

Breaking down the opportunity

At its highest level, we have broken the types of distribution into wired or wireless. This distinction is partly technical (as it reflects the underlying network). It is also related to business model and regulatory regime (eg Net Neutrality, different rules & structures on interconnection and wholesale). Telecoms operators also still tend to be organised along these lines. Below this, we have grouped the main distribution opportunities into Voice, Messaging, Narrowband and Broadband. Again, this reflects typical Telco product line divisions. Below this, there are two broad types of distribution opportunities:

Distribution through the same user device as the Telco core services:
Distribution through a separate dedicated device (generally part of upstream third-party provider’s offer)

Key:

distribution%20block%20chart%20key%20dec%202009.png

Figure 3: Main Distribution Opportunities Schematic

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The “opportunity blocks” in more detail:

Wired

0800 & Premium (access element): This is the “call charge” element of any inbound call service. It excludes ‘1-sided’ premium services offered directly by the Telco (no upstream third-party provider)
Fixed Broadband ‘slice & dice’: This includes a host of 2-sided business models that extract additional revenues from third parties looking to serve subscribers. Some of these are illustrated in figure 4 below.
Fixed Broadband ‘comes with’: Telco’s offer discounted prepaid broadband packages (e.g. 1 year broadband subscription) to hardware distributors who package this with their products (primarily PCs, but could also be a games console or media device).

Wireless

0800 & Premium (access element): As for fixed voice. Although most mobile operators still charge users for accessing 0800 numbers, this is expected to change as mobile interconnection rates converge with fixed line interconnection. This should give freephone a new lease of life.
Mobile Broadband ‘slice & dice’: This includes a host of 2-sided business models that extract additional revenues from third parties looking to serve their mobile subscribers. Some of these are illustrated in figure 4 below.
Dedicated Broadband Device ‘comes with’: Telco’s’ offer discounted prepaid broadband packages (e.g. 1 year broadband subscription) to device distributors who package this with their products (laptops, dedicated application-specific devices). WIMAX is also expected to support many 2-sided business models, some of which are illustrated in figure 4 below.
Narrowband M2M: Machine-to-machine connectivity is expected to grow dramatically. These connections support devices that users do not interact directly with (smart meters, cars, remote sensors).
Application-specific narrowband devices: These dedicated devices support consumer services such as Kindle and business applications such as electronic point of sale. Services to upstream third-party providers may be flat rate or usage based.
Application-specific messaging devices: Twitterpeek is an example of this (in this case there are “comes with” and “subscription” options.
Bulk SMS / MMS, Short codes, Free and Premium SMS: Person-to-application and application-to-person messaging has grown rapidly and is expected to continue growing through the adoption of communications enabled business processes. The falling cost of messaging and its ubiquity make this a powerful tool for businesses to interact with users.

Many potential services within the opportunities shown above do not yet exist and may also be difficult to implement today, given technological and regulatory constraints. For example, the term “slice and dice” includes all sorts of 2-sided business models (see figure 4).

Figure 4: Fixed and mobile broadband ‘Slice and Dice’ examples (not exhaustive)

Application area	Description	Example
Sender pays: Electronic content distribution	Targeted at users with pre-pay, low-cap or no-cap data plans. This service essentially provides out-of-plan access to specific content or services. Service or content provider may adopt a mix of revenue models to achieve a return (ad-funded, user subscription, freemium model).	A pre-pay mobile subscriber wishes to download a free video promoting a new film. Their device is capable of viewing this but the subscriber does not wish to use their limited credits. The film promoter therefore pays for delivery. Note: for the promoter to only use this service for pre-pay customers, they would need to access customer data. This would be a B2B VAS platform service.
Mobile Offload: Fixed operator service to MNOs	Managed service that enables mobile operators to offload high-volume traffic (particularly indoor traffic) onto fixed broadband through managed service over Wifi/Femtocell. This service concept is described in more detail in the Broadband End Games Strategy Report.	Mobile operator Crunchcom is finding that users are exploiting their unlimited data plans on their devices at home. Network capacity needs and the associated capital investment are growing far too fast. Fixed broadband operator Loadsapipe offers Crunchcom a managed offload service to move traffic onto the fixed broadband network.
Clever Roaming: Transitory service	Innovative data-only pre-pay roaming packages targeted to upstream third-party providers of content and services to visitors without a local service. These include application-specific, location-specific, constrained bit-rate, and time-based services (e.g. 1 week unlimited).	Electronic version of the Rough Guide to Liverpool includes a roaming service that enables any user (regardless of home network) to access free of charge; local information, videos, music and offers to local attractions. Restricted roaming service is provided to Rough Guides by UK mobile operator. Rough guides recovers cost through guide charges, advertising and revenue share.
QoS bandwidth: Video Streaming	The broadband provider offers an SLA to the upstream third-party provider for guaranteeing throughput for a streaming service. The SLA also requires provision of B2B VAS services on performance monitoring and delivery reporting. Variations: Freemium model (HD-only charged, peak congestion times charged).	NewTube experiences peak hour congestion on MNQSNN^[1] ISP. NewTube agrees to pay a one-off annual fee to ISP for a 99% peak hour delivery guarantee. Congestion radically reduces. Reporting required to monitor SLA is B2B VAS platform service and charged separately.
Low latency: Real-time cloud apps	SLA offered to upstream third-party provider on minimal latency for applications such as gaming and cloud-based business applications.	Web-based provider of interactive on-line collaborative tools requires low latency connection to multiple external users. Broadband operator offers SLA for all customers (including wholesale) on its network. Reporting required to monitor SLA is B2B VAS platform service and charged separately.
Volume: Very large file transfer (XXGb)	Sending party pays for “special delivery” of very large data files that would normally exceed consumers’ cap/fair use policy. Also could apply for upstream third-party volumes (legitimate P2P apps, home monitoring).	National Geographic channel is offering pay-per-view HD videos. However, many customers of Gotcha ISP would breach their 5Gb quota and so National Geographic pays Gotcha a one-off fee for a national “waiver” so that their videos do not count towards the user “cap”.

[1] Maybe Not Quite So Net Neutral

Guaranteed income?

In theory, Telco’s’ do not need to develop the B2B VAS platforms and associated services in order to secure distribution revenues. The distribution service are extensions of core Telco offerings that could be provided as ‘dumb pipes’. However, as illustrated in the above examples, in practice both B2B VAS platform and distribution often need to come together. It would be complacent for the industry to assume that distribution revenues are inevitable. Many of these distribution services will be of limited interest (and therefore not achieve their potential) if they only cover a small proportion of end users in a given market. Furthermore, the ability of operators to capture the full potential value from distribution will be heavily constrained if they are only able to offer these as a commodity.

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.

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.

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…and changing position in the value chain…

We also identified two other major trends in voice – commoditisation and fragmentation.

Voice is increasingly commoditised – that is to say, it’s a bulk product, cheap, and largely homeogenous. These are also the classic conditions of a product in perfect competition; despite the name and the ideological baggage, this isn’t a good thing, as in this situation economic theory predicts that profit margins will be competed away down to the absolute minimum required to keep the participants from giving up.

The provision of Voice is also increasingly fragmented and diverse – there are more and more producers, and more and more different applications, networks, and hardware devices incorporate some form of telephony. For example, games consoles like the Xbox have a voice chat capability, and CRM systems like Salesforce.com can be integrated with click-to-call services.

As a result, there’s less and less value in the telephone call itself – the period between the ringing tone and the click, when the circuit is established and bearer traffic is flowing. This bit is now cheap or free, and although Skype hasn’t eaten the world as it seemed it might in 2005, this is largely because the industry has reacted by bundling – i.e. slashing prices. Of course, neither the disruptors nor the traditional telcos can base a business on a permanent price war – eventually, prices go to zero. We’ve seen the results of this; several VoIP carriers whose business was based on offering the same features as the PSTN, but cheaper, have already gone under.

The outlook of Telco 2.0 Executive Brainstorm delegates as far back as 2007 demonstrates the widespread acceptance of these trends in the industry, and the increasing proliferation of diverse means of delivery of voice as show in the following chart.

… Voice is still the biggest game in Telcotown…

So why bother with voice? The short answer is that there are three communications products the public gladly pays for – voice, SMS, and IP access.

Telenor’s CPA, one of the most successful and longest-running mobile content plays, is proud of $100m in revenues. In comparison, the business voice market in Norway is NOK6.9bn – $1.22bn. Even in 10 years’ time, voice will comprise the bulk of Telco revenue streams. However grim the prospects, defending Voice is only optional in the sense that survival is optional.

Moreover the emergence of the first wave of internet voice players – Skype, Vonage, etc., and the subsequent fight back by Operators, demonstrates that there is still much scope for innovation in voice and messaging, and that the option of better voice and messaging is still open.

…although the rules are changing…

Specifically, the possible zone of value is now adjacent to the call – features like presence-and-availability, dynamic call routing, speech-to-text, collaboration, history, and integration with the field of CEBP (Communications-Enabled Business Processes). There may also be some scope for improving the bearer quality – HD voice is currently gaining buzz – although the challenge there is that the Internet Players can use better voice codecs as well (Skype already does).

…and the Enterprise market is where the smart money is

The crucial market for better voice & messaging is the enterprise, because that’s where the money is. Nowhere else does the economic value of bits exceed their quantity and cost so much.

For large enterprises, the answer will almost certainly come from custom developments. They are already extensive users of VoIP internally, and increasingly externally as well. They tend to have large customised IT and unified communications installations, and the money and infrastructure to either do their own development or hire software/systems integration firms to do it for them. The appropriate telco play is something like BT Global Services – the systems integration/managed services wing of BT.

But using the toolkit of Voice 2.0 is technically challenging. It’s been said that free software is usually only free if you value your time at zero; small and medium-sized businesses can never afford to do that.

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.

The Core Product is based on Telenor APIs…

The product is based on a suite of APIs into Telenor infrastructure, one of which replicates a hosted IP-PBX, i.e. IP Centrex, solution. It’s aimed at SMEs, and in particular, at integrating with their existing PBX, unified communications, and CRM installations. There’s a browser-based end user interface, which lets nontechnical customers manage their services.

There is also considerable scope for further development, and MB also provides four other APIs, which provide a click-to-call capability, bulk or programmatic SMS, location information, and “Status Push”. This last one provides information on whether a user is currently in coverage, power level, bandwidth, etc, and will be extended to carry presence-and-availability information and integrate with groupware and CRM systems in Q1 2010.

…and integrated with PBX/UC Vendor Client Solutions

Extensive work has been carried out with PBX/UC vendors, notably Alcatel-Lucent and Microsoft, to ensure integration. For example, one of the current use cases for the click-to-call API permits a user to launch a conference call from within MS Outlook or a CRM application. The voice switch receives an event from the SOAP API, initiates a call to the user’s mobile device, then bridges in the target number.

The ‘two-sided’ Enterprise ‘App Store’

MB is also the gateway to a business-focused app store, which markets the work of third-party software developers using the MB API to their base of SME customers. This element qualifies it as a two-sided business model. Telenor is thereby facilitating trade that wouldn’t otherwise occur, by sharing revenue from its customers with upstream producers and also by bringing SMEs that might not otherwise attract any interest from the developer community into contact with it. Developers either pay per use or receive a 70% revenue share depending on the APIs in use.

Telenor are using the existing infrastructure created for CPA to pay out the revenue share and carry out the digital logistics, and targeting the developer community they’re already building under their iLabs project. So far, third-party applications include integration with Microsoft’s Office Communication Server line of products, integration with Alcatel-Lucent and some other proprietary IP-PBXs, and a mobile-based CRM solution, WebOfficeOne.

Route to Market: Enterprise ICT Specialists

In a twist on the two-sided business model, MB services are primarily marketed to systems integrators, independent software developers, and CRM and IP telephony vendors, who act as a channel to market for core Telenor products such as voice, messaging, presence & availability, and location. This differs quite sharply from their experience with CPA, whose business is dominated by content providers.

Pricing is based on a freemium model; some API usage is free, businesses that choose to use the CPA payments system pay through the revenue sharing mechanism, and ones that don’t but do use the APIs heavily pay by usage.

Technical Architecture: migrating to industry standards

Telco 2.0 has previously articulated the seven questions concept – seven key customer questions that can be answered using telecom’s operator’s data assets as shown in the following diagram.

Telenor’s API layer consists of Simple Object Access Protocol (SOAP) and Web service interfaces between the customer needs on the left of the diagram, and a bank of service gateways which communicate with various elements of in the core network on the right.

At the moment, the click-to-call and status push interfaces are implemented using the proprietary Computer-Support Telecoms Applications (CSTA) standard, in order to integrate more easily with the Alcatel-Lucent range of PBXs. So far, they don’t implement Parlay-X (or OneAPI as the GSMA calls it), but they intend to migrate to the standard in the future. Like Microsoft OCS, Asterisk, and much else, the industry standard IETF SIP is used for the core voice, messaging, and availability functions.

Early days, high hopes…

Telenor is unwilling to describe what it would consider to constitute success with Mobilt Bedriftsnett; however, they do say that they expect it to be a “great source of income”. MB has only been live since June 2009, and traffic to CPA inevitably dwarfs that to the MB APIs at present.

…and part of a bigger strategic plan

Mobilt Bedriftsnett makes up the Voice & Messaging 2.0 element of Telenor’s transformation towards Telco 2.0. The other components of ‘Telenor 2.0’ are:

CPA, the platform enabling 3rd party mobile content transactions
the iLabs/Playground developer community
increasing strategic interest in M2M applications
a recently launched Content Delivery Network (or CDN – a subject gaining salience again, after the recent Arbor Networks study that showed them accounting for 10-15% of global Internet traffic )
Mobile Payments, Money transfer and Banking at Grameenphone in Bangladesh.

Lessons from Telenor 2.0

With Mobilt Bedriftsnett, Telenor has carried on its tradition of pioneering Telco 2.0 style business model innovations, though it is relatively early to judge the success of the ‘Telenor 2.0′ strategy.

At this stage of market development, Telenor’s approach therefore shows three important lessons to other industry players.

1) They are taking serious steps to create and try ‘two-sided’ telecoms business models.

2) The repeated mentions of CPA’s role in MB point to an important truth about Telco 2.0 – the elements of it are mutually supporting. It becomes dramatically easier to create a developer community, bill for sender-pays data, operate an app store, etc, if you already have an effective payments and revenue-sharing solution. Similarly, an effective identification/authorisation capability underlies billing and payments. Telenor understands and is acting on this network principle.

Full Article: Where to Co-operate, Where to Compete

You can download the full 25 page Briefing in PDF format here. The Executive Summary and Table of Contents are reproduced below.

Summary: An in-depth analysis of Google’s strategy and objectives overall and in particular in relation to the Telecoms industry, with recommendations of where to compete and where to cooperate.

Executive Summary

Google is not just a search engine, nor is it just a media or a software company. It is, first and foremost, a massive advertising brokerage, which uses two-sided business models to maximise both the creation of ad inventory and the accuracy with which it matches targeted ads to content.

A major driver of Google’s success is its investment in infrastructure – it spends almost twice as much CAPEX as its closest competitor, Yahoo! The combination of two-sidedness and infrastructure has led to the creation of a business with immense market share, stable and sizeable margins, and strong cash flow.

Like many successful ‘two-sided’ business models, Google employs two out of three generic approaches to charging described further in the report – charging merchants for transactions and services. Its success is enhanced by synergies with its free enabling services for merchants such as Google Adwords and Google Analytics, and by the growing end-user market reach of new and acquired applications such as Google Maps, Google Voice, Gmail, YouTube and the Chrome browser.

The frequent criticism that Google is unfocused is dismissed. Instead, we argue, Google’s investments reflect:

Google’s aims to increase the share of time that people spend on its sites, and the total time people spend on the Internet overall (at the expense of other media)
a conscious strategy of experimentation
a policy of creating capabilities for future development as a deterrent to competitors from entering businesses vital to Google’s success. We characterise these deterrents as ”submarines”.

We see two major areas of conflict between Telcos and Google: communication services and advertising. In particular, Google is probably the largest single strategic threat to operator voice and messaging businesses. Its ability to reinvent its own versions of operators’ supposedly “unique” capabilities should not be underestimated. Right now, Telcos’ have unrivalled raw data on consumer behaviour, but Google is seeking to build its own direct relationship with consumers as it makes a play for the mobile advertising brokerage business.

Even so, Google is the Telcos’ friend in the sense that its portfolio of user-friendly services is driving mobile Internet usage and new sales of mobile data tariffs. We conclude that Telcos should adopt a policy of ‘co-opetition’, fighting fiercely in some areas and partnering in others.

We recommend that Telcos should co-operate with Google in these areas:

Adopt, but customise, Android. Android is essentially an aircraft carrier for Google’s communications services, but Telcos can neutralise the short-to-medium term threat by customising this highly open platform. Android smartphones will also drive sales of mobile data tariffs and act as a counterweight to Apple and Nokia. But Telcos should be alert to any moves by Google to exert tighter control over Android.
Telcos should work with Google to combine the impressive and hard to replicate Google Maps and Street View apps with Telcos’ location data and Call Detail Records (CDR) to produce compelling, personalised services.
As its revenue growth slows, Google may start trying to sell more services to consumers, which would help the whole Internet ecosystem move to a more sustainable business model. Telcos should encourage such a move, perhaps by providing white-label authentication and billing systems.

We recommend that Telcos should compete with Google in these areas:

Telcos’ voice and messaging services need to at least match the ease-of-use and rich functionality of Google Voice.
Telcos are well positioned to claim a major share of the mobile advertising brokerage business, but Google is unlikely to let that happen without a fight, so Telcos may be forced into head-on competition.
Unless Telcos can provide faster and more accurate location information than Google, much of the value could be sucked out of the promising market for location-based services.
Telcos need to ensure their networks and billing systems, rather than the Internet or a Google platform, underpin the nascent mobile payments and mobile banking markets.
Telcos’ ‘Golden Asset’ underpinning many of the potential future business models is the wealth of customer data available through their Call Detail Records (CDR) and billing systems. Understanding consumers’ behaviour will be the key to victory in the voice, messaging and advertising brokerage markets. It is vital that Telcos recognise and value this data, and do not inadvertently permit Google to accumulate it.
Neither should Google be allowed to attract a disproportionate share of the time and attention of mobile apps developers and thereby dominate the mobile apps market in the way that Microsoft came to win the PC software market.

Understanding Google’s business

Google – the infrastructure company

Google: A Classic Two-Sided Business Model

Strategies for Two-Sided Markets

Approach One: making money out of transactions

Approach Two: sell services to the crowd

Approach Three: charge for access

The power of combinations

Criticisms of Google’s Strategy

Social Networking: Has Google missed the boat?

What about the dark fibre, Google Checkout, radio spectrum bids?

Google Changes Sides?

Google versus Telcos: SWOT Analysis

Who Knows What About Consumers

Location: Searching for an Edge

Google’s Communication Services

Google Talk: Softly, Softly

Google Voice of Doom?

Wave goodbye to push email?

Android: An Aircraft Carrier for Google Services

More of a threat than an opportunity

Google – The Extraterrestrial

The Advertising War of 2011

Recommendations for Action

Ignore, Fight, Partner?

Conclusion: Co-Optition is the way forward

New age, new needs, new approaches

Figure 1: Needs for efficient use of resources are driving economic and digital transformation

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A new purpose for a new age

A little history 2.0

Table of contents

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Background – The Roadmap to New Telco 2.0 Business Models

Updating the Telecoms Business Model

Pressure on All Sides

Introducing the New Telco 2.0 Framework

The Six Telco 2.0 Opportunity Types

Best Practice Innovation, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios

Report Details

Report Overview & Content

Introduction

Broadband Best Practice Innovation and ‘Telco 2.0′ Opportunities

‘Managed Mobile Offload’ Use Case

Future Scenarios

Forecasts and Conclusions

Who is the report for?

Telecoms Operators’ and other Broadband Service Providers’:

Vendor audiences:

Regulators and other Government departments

Investors

Consultants & integrators

Report Contents

Executive Summary

Part 1: Background to the Broadband Industry

Part 2: Fixed retail broadband business models

Part 3: Mobile Broadband Retail Business Models

Part 4: Advanced broadband wholesale business models

Part 5: Use Case: Managed Offload of Mobile Broadband

Part 6: Forecasts and Conclusions

Key Figures and Forecasts

Downloads

Fit with other Telco 2.0 Broadband Reports

Introduction

Overview

Maturing products and business models

Convergence of fixed and mobile technology and product offerings

Greater state intervention in deploying and controlling broadband access

A more complex broadband ecosystem

New consumer behaviour and higher expectations

Defining Telcos and BSPs in the future

Market adoption of broadband

The Four Scenarios

Introduction

Defining 2-sided distribution

Breaking down the opportunity

Wired

Wireless

Guaranteed income?

Introduction

‘Telenor 2.0’

Voice 2.0: despite the changing value proposition…

…and changing position in the value chain…

… Voice is still the biggest game in Telcotown…

…although the rules are changing…

…and the Enterprise market is where the smart money is

Telenor’s ‘Mobile Enterprise Network’: Mobilt Bedriftsnett

The Core Product is based on Telenor APIs…

…and integrated with PBX/UC Vendor Client Solutions

The ‘two-sided’ Enterprise ‘App Store’

Route to Market: Enterprise ICT Specialists

Technical Architecture: migrating to industry standards

Early days, high hopes…

…and part of a bigger strategic plan

Lessons from Telenor 2.0

Executive Summary

Table of Contents

Sample Reports