Telco 2.0™ Research

The Future Of Telecoms And How To Get There

The 7 Top Themes of Telco 2.0, Spring 2010

Introduction


The Telco 2.0 Team’s seven main take outs from the 9th Telco Executive Brainstorm were on the themes of:

  1. Machine-to-Machine (M2M);
  2. Bloated Broadband Economics;
  3. Google, Apple and Facebook;
  4. Leveraging Consumer Data;
  5. The Capital Markets;
  6. Smartphones and Apps;
  7. The Roadmap for change.

This summary will be followed with detailed write ups for subscribers and event attendees, and dedicated posts on the Enterprise and Digital Entertainment Sessions. We’ll also be featuring more on these themes at the Free Telco 2.0 Best Practice Live! global online event on 28-30 June 2010.

A PDF version of this document can be downloaded here.

Context


Spring was certainly in the air in London last week. Excited analysts’ bellows echoed round the halls of St Pauls, the April sun shone on tender green shoots of new growth, there was a general sense of renewal - and yet the shadows of winter were not entirely burned away.


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The Telco 2.0 Evening Rooftop Barbeque next to St Paul’s Cathedral was a popular new addition to the event

M2M - The Sap is Rising

There was a palpable ‘can do’ buzz at the session on Machine-to-Machine (M2M) and a real sense of energy that the telecoms industry can collectively energise something worthwhile. The key question is what are the best ecosystems for telcos to put in place to enable this nascent opportunity, For more on this, please see our recent detailed Research briefing ‘M2M / Embedded Market Overview, Healthcare Focus, and Strategic Options’ and summary of the session Machine-to-Machine - ‘Opening for Business’.

Bloated Broadband Economics – Spring Cleaning Time


How to successfully manage the revenues and costs of broadband data distribution was a major topic of discussion throughout the event, and was the core focus in the Mobile Broadband session.

Early market signs and economic logic suggests that there may be some willingness in the market to pay for quality in circumstances of congestion, but the precise mechanics and indeed many of the alternatives are likely to be subtly executed. (For more analysis please see our strategy report ‘New Mobile, Fixed and Wholesale Broadband Business Models’.)

There was significant debate on the tactic of re-pricing data plans – a few seemed to think that telcos could put the price up but many thought that this would not hold in competitive markets, particularly in mobile. Innovative changes to usage caps and price structures, and promoting users to higher tariff tiers through bundling of extra value-adds like the music service Spotify could help.

Moreover, as the following chart shows, LTE was not seen as the initial ‘weapon of choice’ in dealing with capacity issues, certainly in the short term.

Figure 1 - Q. Creating integrated traffic management and segmentation strategies is more important in addressing capacity and coverage crunch than investing in LTE networks alone?

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Source: Telco 2.0

There is also significant scope for intelligent management of costs in Broadband. We particularly liked the concept of ‘Bloatware’. This was raised by Andrew Bud, Chairman of the Mobile Entertainment Forum, who suggested that some high bandwidth content could be intelligently streamlined with advanced compression and better choice of formats. Intriguingly, RIM’s Blackberrys use up to 3 times LESS bandwidth than some other smartphones (see RIM: how does the BlackBerry fit with Telco 2.0 strategies? so there is clearly scope here. The key questions are: who engages with developers and content providers to get them to generate more “network friendly” data; and how do operators best incentivise them?

Bud also usefully clarified that the issue of Net Neutrality is not that charging is not allowed, but that it should be transparent, non-discriminatory and available to all. This means that ultimately it should be possible to buy better quality data distribution - and we would argue that this could be paid for either upstream or downstream customers. Bud also said there is a ‘difference between providing enabling services and blackmail’ – in other words between offering a paid service to all upstream customers and applying a mandatory levy to say, Google (see ‘Google: 3 Big Telcos reach for their guns’).

There’s also an argument for both fixed and mobile operators to work on a “congestion API” to enable application and content players to make their own decisions (e.g. dropping the frame rate, etc).

Google, Apple, and Facebook – Eternally Springing Surprises


We’ve commented before on the enduring fascination, bordering sometimes on paranoia, that the telecoms industry shows towards the three 2.0 US Giants, particularly Google (see ‘How Google’s Chief Magician Stole the Show').

Figure 2 – The Elephant in The Room: Google’s Cash Mountain

google%20elephant%20may%202010.png

Source: Telco 2.0

For the first two companies, Google and Apple, which have business models that currently make money, a key element of interest at the Brainstorm was the staggering cash piles that each now hold – around $25Bn and $40Bn respectively. Apart from all the technical magic they perform, who or what might they acquire is increasingly fascinating. For example, there have been recent rumours of Apple acquiring chip designer ARM, which has its products embedded in almost all mobile phones.

Google also appears to be on the right side of the EU Commission on the “Google tax” issue, and they are likely to push for revenue-share arrangements with operators that are willing to give prominence to and reach for their properties like YouTube and specifically its advertising. Possible options include operators pushing YouTube, enabling it to run in HD, or providing Google with additional customer data.

In addition, there are some early signs that Android may be gaining traction in parts of the mobile advertising space according to stats from Admob, overtaking Apple for the first time in the US in March 2010, and growing from 2% to 24% in the space of a year Feb 2009-Feb 2010. However, It should be noted that AdMob stats do not show the complete picture, as for example, a lot of iPhone advertising spend is now through apps rather than browser, and these ads are not captured in the Admob statistics here.

Figure 3 – AdMob – Early Indicators of Android Gaining Traction

google%20android%20growth%20may%202010.png

Source: AdMob/Telco 2.0

For the third of the trinity, Facebook, the fear and fascination is in what their ultimate business model might be. For example, in the news this week, the music service Spotify announced API integration with Facebook to provide an embedded music service. What if Facebook start to integrate more voice services for example? Hang on a minute, you store details of your friends there, communicate with them, hold loads of really interesting data on them, don’t they sound a bit like, erm, how can we put this, a telco substitute?

Leveraging Consumer Data – the Well Spring of Future Value?

Back onto the ‘real thing’ as it were, the telcos’ consumer data, Telco 2.0’s data framework went down well with the audience (see the Briefing Report ‘Can Telcos Unlock the Value of their Consumer Data?', plus ‘Consumer Data and Privacy 2.0: Give Customers the Power’).

Figure 4 – Telco 2.0 Consumer Data Privacy Framework

Laidler_Telco2Intro_Privacy2010%20Framework.png

Source: Telco 2.0

Tanya Field, Director Mobile Data Group, Telefonica SA, struck a refreshingly impressive and thoughtful note on Telefonica’s highly practical and thorough approach to reviewing its data, asking hard questions on what exactly each piece of information is worth to the company now. What she said about how to manage such activities alongside the core telco business was also very interesting, and there’s more on this below.

It’s Still Winter in Telco Financeland

Like modern ‘Jack Frosts’, Richard Kramer of Arete Research and Jonathan Dann of Barclays Capital both gave typically punchy and downbeat assessments of the perceived prospects and expectations of the telecoms sector. For telecoms stocks, it is to the finance markets essentially about producing a stable cash flow, while for technology stocks it’s about finding the two in ten stocks that, temporarily at least, generate super normal returns through growth.

This doesn’t mean that innovation is a luxury, indeed far from it – winning companies will outperform the sector by doing the right things better than the others. Much of this is by definition business model innovation – producing differences in the structure of markets, revenues and costs. But the key here is to prove that you’ve done it, not announce that you plan to do it, and this is a message we’ve heard time and time again from the finance community.

Reflecting on telcos’ needs to implement profound but manageable business model change, the Telco 2.0 team are now working on a refined ‘Roadmap’ of Telco 2.0 Strategies to be published in the summer. This will include updates on best practice, and the business model innovation and transformation activities required to successfully improve ‘Telco 1.0’ and take it on to the path to ‘Telco 2.0’.

Smartphones: it’s Christmas already, but where’s the Cheer?

Yves Maitre, SVP Group Devices Orange, presented a feisty view of the upcoming $1.5Bn Christmas marketing war between the ‘6 Rich North American Fighters’: Apple, Google, RIM, Microsoft, Intel, and Qualcomm.

As well as presenting the following tools of the trade for the devices market, Yves gave a highly personal account of certain aspects of the devices market, while two good friends of Telco 2.0, Richard Kramer and Dean Bubley, locked horns loudly over the ’iPad – Dream or Dog Product’? We do love a good argument at Telco 2.0, but we don’t repeat it all - and that’s part of the reason you should be there if you weren’t!

Figure 5 - The 5 Business Model Tools of the Device Market

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Source: Yves Maitre, SVP Group Devices Orange

In terms of Apps, Ilya Laurs, CEO Getjar, described today’s mobile apps as the equivalent of a fixed website 20 years ago. He shared learning that take up of Apps is driven more strongly by consumers’ ownership of a live data subscription than by ownership of Smartphones, and that a consumer with an unlimited data plan buys eight times as much Apps as one with a paid subscription. He also cited the forecast that by 2012, the App market would have grown by seven times and be worth $17.5Bn, nearly equivalent to the entire music industry at $23Bn.

Tom Hume, an independent App Developer, showed two great case studies, and told the rather depressing tale of how one UK operator had taken nearly five years to approve a single puzzle-based app.

The Roadmap for Change

It’s always refreshing and enjoyable to get out and meet some of our customers at the Telco 2.0 Executive Brainstorms. We learn so much at every session and from everyone we meet.

The people at the Brainstorms are normally those who understand the need for strategic change in the industry and are either doing something about it or figuring out what to do. But we understand that there’s a lot of difference between the exciting and stimulating world in our heads and the day-to-day reality of life in telcos and their partners – in part because many of us have worked in operational and strategic roles in the industry.

The Telco 2.0 Initiative exists to help catalyse change, and we share the frustration of some of our customers at the slow pace of change in the industry, of which we thought the tale of the 5 years it took to approve one benign gaming app was particularly symbolic.

Now, we’re not saying that the collection of ideas and opportunities that we’re presenting are the answer to all telcos’ troubles. But there are a common set of factors that individually and collectively, the industry needs to address in order to maximise its future value and usefulness.

First, the ‘size of the prize’ and the potential role for the Telco industry needs to be clarified and analysed to a much greater level of detail. That’s why we’re working on the syndicated research study ‘Telco 2.0 Ecosystems’, and working to get this major project funded by key players.

Second, the nature of the threat needs to be appreciated, and this isn’t just about managing declining prices and economic factors in the existing telecoms markets, but about being better positioned to compete in the markets of the future. It is about what the telcos stand to lose if they continue to watch the bright internet guys ‘hoovering up’ all the key data assets of the new digital economy (e.g. location data), without trying to facilitate it or compete in it effectively. We will be doing more to highlight and address this in 2010, developing a detailed analysis of the strategies and opportunities of the key adjacent players, and where telcos can realistically compete or participate as an enabler, including in consumer data.

Third, we cannot change the industry, but you can. Our action here is to bring together the best near term and current practice we can identify and share it with you through our research, events, and consulting, and we’ll be showcasing this in a new interactive format via Telco 2.0 Best Practice Live! - the first carefully curated, online, video-based, interactive knowledge bank of cutting-edge ‘Telco 2.0’ services, business models and solutions from around the world. It runs on 28-30 June 2010.

Finally, we’re about to publish the Telco 2.0 ‘Case Directory – 5 Use Cases and 10 Case Studies’ Strategy Report outlining near term opportunities in more detail, and will be publishing a new report ‘The Roadmap to New Telecoms Business Models’ at the end of the summer 2010. This report will examine in depth the best practice, actions and strategies to take the Industry forward. Within this we will also look at how some telcos, such as Telenor and Telefonica for example, have started to address organisational and cultural issues to enable faster innovation and change.