Telco 2.0 Use Case Project – Draft Approach, Oct 2008
Background
It has been well-documented, by us and others, that telcos continue to frequently find themselves on the wrong side of rapid changes in consumer behaviour, technology evolution and regulatory reform. This cocktail of adversity demands a fundamental re-think of the role and position of the telco in the value chain, moving away from the traditional one-dimensional service model to something more suitable to the new landscape.
In the recent Telco 2.0 report, “The 2-Sided Telecoms Market Opportunity: Sizing the Platform Play, we defined the new opportunity for telcos and put forward some very detailed ideas and illustrations of how this might work in practice. We determined that the new opportunity for telcos, which we estimated at $125bn in incremental revenue terms (which builds on $250bn of potential incremental revenues from new wholesale platforms, see this report), lay in repositioning the business to serve as an enabling platform for transactions between upstream and downstream customers. We further identified four key definitional aspects to a platform created for a “two-sided” business model:
1.It is a catalyst enabling two or more parties to contract directly using the platform;
2.It does not directly participate in the contract;
3.Its value is in helping parties to contract more easily, more efficiently, and more effectively, by reducing transaction costs and friction;
4.Its value comes from scale, on at least one side of the market, which then drives usage on the other side.
Furthermore, we identified seven key areas of service capability where telcos can claim a range of strategic assets vital to constructing a value-added services platform strategy to capture the two-sided market opportunity:
1.Identity, authentication and security;
2.Advertising, marketing services, and business intelligence;
3.E-Commerce sales;
4.Order fulfilment, offline;
5.Order fulfilment, online;
6.Billing and payments;
7.Care and support
In each of these areas, telcos possess assets, in many cases traditionally underused, which are uniquely placed to develop a successful platform business. These include trusted authentication mechanisms, customer and billing relationships (both consumer and enterprise), customer data and meta-data, voice and messaging APIs, and experience in quality of service delivery.
Use Case Project plan
The use-case project (which will culminate in a major report in November) will isolate real-world examples from each area of service capability wherein the telco can fill (or, indeed is already filling) a void in a transaction space to reduce friction, in the process forming the final piece of a platform business which can be replicated in other industry verticals. On our current report roadmap, sample use cases would include the following:
1.) Identity, authentication and security – Despite evidence of growing consumer reliance upon online transaction spaces, telco upstream customers in the commerce arena continue to encounter challenges in identifying/authenticating customers and preventing fraud.
Online gambling site Betfair, for example, is constrained by a legal requirement to confirm the nationality and age of players, with a high cost of compliance ($22 per registered user) and unacceptably lengthy process. Telcos possess customer meta-data which may form the basis of an authentication mechanism to reduce these costs and remove friction from transactions.
Mobile operators already perform some interventions to prevent minors from accessing adult content on their handset, and so probably already have many of the relevant assets and process in place. Such a platform could be repurposed for other industry verticals, and also potentially be developed into a subscription service for end users.
2.) Advertising, marketing services, and business intelligence – Advertisers continue to struggle with shifts in media consumption and consumer behaviour which demand a new approach to targeting and performance metrics. Marketers want to target users with the right offers and measure the success of their marketing campaigns as this allows them to demonstrate marketing ROI.
Whether it be online advertising or via traditional video/IPTV platforms, telcos have valuable customer relationships and meta-data which can be harnessed to more effectively target and measure, opening up new markets in the process.
3.) E-Commerce sales – Innovative content and applications developers often find it difficult, if not impossible, to penetrate the walls of telco HQs, and telcos are not typically structured to deal smoothly with small suppliers or partners.
A number of operators have wished to enrich the suite of services and applications available across its properties, without committing to their own expensive development programme. Instead, one or two leading players are creating a developer environment, exposing APIs to allow third parties to showcase services and applications on its network. If these are successful, they can then be commercialized across the operators’ entire footprint on commercial terms agreed with the developer.
4.) Order fulfilment, offline/customer care – Real-world order fulfilment, customer care, and credit management are fraught with complexity and unnecessary costs, which telcos have the tools to mitigate. A major catalogue company has been looking to streamline its customer interaction routine to make deliveries and credit collection transactions more efficient. It has employed a solution sourced from a specialist software company, and realized efficiency gains, as well as lower debt insurance costs as an added benefit.
Telcos have extensive corporate customer bases on managed service offerings often tied to internal network and data management. By more closely aligning the offering to specific business processes, in partnership with innovative players in the space, telcos have the ingredients to create and market a platform which could be deployed widely across multiple industry verticals, in some cases generating incremental sales from existing customers.
5a.) Order fulfilment, online/content delivery assurance – Investment banks face significant challenges in managing data effectively on their trading systems in an era of extremely high volume electronic trading, wherein even tiny amounts of latency/congestion can invalidate large volumes of transactions.
The systems integration arm of a large telco was awarded the managed service contract for an international bank, but has needed to partner with small, early stage company to find a solution. As the solution is proven, the telco will end up with a managed services platform which can be marketed across the industry, with a trusted reference client for validation.
5b.) Order fulfilment, online/content delivery assurance – Terrestrial broadcasters in Japan are faced with competitive pressures from P2P and over-the-top video applications, while currently being barred by regulation from offering linear programming over the web. As a result, they have been relatively slower than some of their overseas peers to develop an internet presence.
In cooperation with consumer electronics players, they have now taken their first step forward, in anticipation of a change in regulation, by forming a consortium to bring time-shifted, on-demand content to networked televisions using Japan’s enviable broadband access infrastructure for distribution.
For local access providers, the associated network load may be an increasing source of pain, but an affiliate of a major local telco, which manages the CDN behind the consortium, is a leader in P2P research, and is potentially capable of deploying a network cache element on the platform.
In so positioning itself, the telco affiliate might be in a position to generate revenue both from upstream (broadcasters) and downstream (local access companies) customers, as well as facilitating a localized advertising platform in which all could take a revenue share.
6.) Billing and payments – Social networking sites and virtual worlds face numerous challenges in billing and payments, particularly when their target demographic group may not yet be part of the conventional banking system.
On fast growing social network, focused on a particular demographic, derives significant revenues through the sale of virtual goods, with payment typically tendered via SMS. However, telcos have customer and billing relationships beyond the mobile arena which may also be harnessed to create alternative payment mechanisms, rather than leaking such opportunities to the likes of Wallie or Paysafecard.
