Summary: senior industry executives in Palo Alto at the 12th Telco 2.0 Executive Brainstorm agreed that half of the telco growth available in the next 3 years would come from the new business model opportunities identified in the ‘Roadmap to new Telco 2.0 Business Models’ report. The other half would come from improvements to the current business model. Headline findings in brief. (April 2011, Executive Briefing Service)

NB We'll be discussing all of the issues outlined here and more in the 13th Executive Brainstorm in London, 11-13 May 2011. Please see here for more details, email , or call +44 (0) 207 247 5003.

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Americas Brainstorm: Background

STL Partners’ New Digital Economics Executive Brainstorm & Developer Forum AMERICAS took place from 5-7 April in Silicon Valley, California. It was attended by just under 200 senior industry executives and focused on new growth opportunities at the intersection of Communications, Media and Entertainment.

The Brainstorm brought together 4 events in 1 venue, co-locating the Telco 2.0, Digital Entertainment 2.0, Mobile Apps 2.0 and Personal Data 2.0 summits, and built on the output of previous brainstorms, new market research and analysis from us and our partners, and used our unique 'Mindshare' interactive approach.

Searching for New Telco Growth

As one of the stimulus presentations in the session on finding new growth, Chris Barraclough, Telco 2.0's Chief Strategist, presented the six opportunity categories identified in the new strategy report 'The Roadmap to New Telco 2.0 Business Models'.

The participants then debated the issues and challenges, and were then asked to vote on the scale of the opportunity within the next three years.

[Q. Rate each of the following according to their likely ability to ‘move the needle’ and generate incremental growth for the telecoms industry in the next 3 years where: 5 = very significant incremental growth (20+% above current level); 4 = material growth (10-19%); 3 = worthwhile (5-9%); 2 = marginal (0-4%); 1 = immaterial or negative impact. %'s above based on a weighted average of the ratings.]

Telco 2.0 Take-Out

• The first three opportunities (Core services, Vertical industry solutions (SI) and Infrastructure services) averaged in total 26.5%, and are based on using business model innovation to extend existing business opportunities.
• The last three (Embedded communications, Third-party business enablers, and Own brand OTT) averaged 27.3% of total growth, and are based on creating new telco business models with existing and new assets.

Hence it would seem that there was support for the view that new business model opportunities could indeed generate roughly half of potential growth, which is encouraging.

However, it is important to note that these opportunities are not all necessarily additive – i.e. one can’t necessarily add all opportunities together and say the opportunity is for 53% growth overall. In our previous forecasts we've been somewhat more conservative - see e.g. the $125Bn Two-Sided Telco Market Opportunity report, and have generally said that new business models could account for up to 30% of revenues in 10 years time.

Moreover, 'Third-party business enablers' will be tough to do well. There will be lots of competition from new players (Google, Facebook, Apple), from other industries (banks etc.), and to capitalise on the opportunity requires new skills and relationships – latent assets, new revenue model, new distribution channels etc. It also has regulatory implications – e.g. privacy. That is not to say that telcos can't succeed in this area - we describe which telcos could be successful at this and what they need to do in the Roadmap report.

Despite their limitations as an absolute measure, we think these new results are a useful indicator of the relative attractiveness of the types of opportunity. While the 'wisdom of crowds' is not always that profound, the six opportunty types were supported by the participants at the brainstorm and, given the experience and seniority of the audience, we see this as evidence of significant industry support in the key strategy making arena.

There is a significant further reason to be positive about the new opportunities, as we believe that the three new business model opportunities will require less capex to implement than the existing opportunities. This will mean a better potential return on invested capital (ROIC) - a key measure when looking at investment in growth initiatives, and one which we believe will take on increasing importance for telco CxOs when looking at future strategies in order to achieve a successful balance between feeding quarterly EBITDA performance and ensuring that their businesses have a future other than as a commodity stock.

Other Headline Themes from Palo Alto

We'll be writing and publishing more in-depth analysis on all of the following areas over the next few weeks, building on output from both the Americas and the upcoming EMEA brainstorms. Here's a brief round-up.

• Mobile Internet. ‘Embedded Communications’ will help drive industry growth as will basic service improvements and new business models. Key themes were that there are multiple challenges and multiple solutions to the mobile internet but no panaceas, ‘Stationary mobile’ & Public Wifi is an interesting new trend, and tablets will only kill parts of the network - probably.
• Cloud Services looks like a great telco opportunity with the right business model(s), although it would be a mistake for many to attempt to copy the current dominant players. Increasingly the key step is to start testing and developing and integrated strategy that suits your position and capabilities best.
• Personal Data & Transformation. A key observation was that 'Profits move to Data Miners', which we felt was an elegant statement of how value migrates to those who best use information to develop their businesses. This encapsulates key strategic points that apply both to telcos internal need to become smarter and better retailers, and to their strategies to enable Third-party enablers.
• In Digital Entertainment 2.0 more and better experimentation is needed as content producers, providers and developers seek new ways to protect and grow the value of their existing business as it moves to digital distribution from physical. Telcos have assets and capabilities that can help, but they need to recognise the interests of the ecosystem as a whole, and take part in the experimentation.
• Digital Lockers are a key part of future Digital Entertainment strategies. There was considerable debate over the relative merits of ownership vs rental models by different content (music, films, games etc.), though there was clear support for the new Digital Content locker concept as proposed by DECE/Ultraviolet. In Connected TV, content discovery is the key enabler required to lubricate the ecosystem.
  
• In Mobile Apps 2.0, there was considerable debate on how telcos and others must be more creative to add value to the App Economy. It is not necessarily sensible to copy Google or Apple, though there is much to learn from their strategies as was discussed in Fostering Vibrant Ecosystems, which also concluded that there are rich opportunities for new models and new ecosystems.

Next Steps

We''ll be discussing and developing these themes further at the 13th EMEA Executive Brainstorm in London, 11-13 May 2011 (please see here, email , or call +44 (0) 207 247 5003). We'll also be developing and publishing further analysis based on the discussions and output from these brainstorms.