Saturday, August 25, 2007

Ad Age panel on mobile advertising

Insightful and most likely accurate.
9:33:11 PM    comment   
 Saturday, August 11, 2007



Sky & Virgin Media Ad Spend According to Nielsen, Sky spent £70m on ads in the first six months of year compared to £37m from Virgin Media which includes its rebrand costs. In the same period last year, Sky spent £50m and NTL spent £16m. These amounts doenít include online search and display spend. Also, it doesnít specific how much of the amount is basically taking money out of one pocket and putting back in another with spending on own channel TV adverts and NewsCorp publications.

Nevertheless, the amounts involved will send shudders down the spines of all but the biggest communications companies: Sky has basically outspent even the mobile networks. There canít be many people left in the country who don't know that you can buy the triple play ìSpeak, Surf, Seeî from Sky. Meanwhile, Virgin Media will also have gained a few brownie points with the army of Uma Thurman fans out there in the country.

As the broadband market moves into one of churn and attracting the non-geeks, brand becomes more and more important and there are few brands in the UK as strong as Sky.
- KeithJamesMc [TeleBusillis]
5:37:22 AM    comment   



Q2: UK Mobile Market Wrap-Up I knocked up a quick chart showing the trends in the UK Mobile Market, but before the analysis a couple of notes of caution:
  • 3UK figures are not released yet and these are more important to the UK market than Virgin Mobile
  • Voda have stopped recording the inactive numbers, so have a different way of counting the base than the rest
  • Voda and O2 exclude their MVNO operations from the subscriber count
  • I have assumed all the Virgin Mobile base, both prepaid and contract, are counted within the T-Mobi prepaid numbers. The T-Mobi numbers will also include figures from their smaller MVNOs such as Fresh.
  • O2 and T-Mobi only state their revenue figures in Äís and therefore I have converted them using the average exchange rate used by Orange during the quarter.

uk-mobile

What is apparent is the speed that O2 service revenues are catching up to Voda's. However with Voda taking much more market share in net adds for both pre and post paid for the half year, Iíd be extremely surprised if Voda didnít finish 2008 still in the lead on the service revenue front.

The promotion of the quarter is definitely the O2 Simplicity deal which appears to be pushing its prepaid base into taking sim-only contracts. Personally, I think this is a great idea and will undoubtedly be copied by the other networks. I think the offer could also be slightly developed and offer tenure-based discounts on new handsets ñ this will drive traffic into the operator stores and promote loyalty. This is the approach that Sky is taking on flogging HD boxes and every operator in the UK would love for Sky-like churn figures.

The other interesting development in the quarter was the axing of the BT Movio mobileTV service as retailed by Virgin Mobile. Personally, I think this is a shame and is probably an indicator that DVB-H will eventually win out as the standard in the UK. For the other operators, they will be grateful to one less potential buyer of spectrum in the forthcoming L-Band auction.

Virgin Mobile has a new boss, but I think he will have his work cut out to improve margins and the customer base at the company. It is easy to provide a short term impetus to earnings by effectively shutting down a vast swathe of distribution to concentrate on direct sales to the cableTV base. Virgin Mobile is probably facing a long decline in the base unless they start pushing prepaid again.

The big surprise to me was Carphoneís continued growth in distribution despite nearly all the operators claiming direct connections are at a high. All I can think of to explain this phenomena is that Carphone is taking market share from the other mobile retailers such as Phones4U. It just goes to show the continued excellence of Carphone in retailing both on the High Street and Online. I did have to laugh at the Rene Obermann comments about one UK retailer being exceptionally aggressive in the quarter.

T-Mobile are a bit of an enigma at the moment with them cutting the value in the Flext package and also facing the initial wave of Flext contracts from the launch 18-months ago starting to expire. I suppose if things get really scary and they start losing some of the contract base, Carphone will gladly help them out in acquiring new customers at the right commission level.

3UK have also been quite quiet in the marketplace, but I think this is more a feature of the success of the X-Series and them not having to put other offers into the market. The key focus for them is the battle with OFCOM over termination fees, a victory in this is an absolute must. - KeithJamesMc [TeleBusillis]
5:27:45 AM    comment   
 Wednesday, July 11, 2007
 Saturday, May 12, 2007



Number Of Voice Calls Dropping In the UK.

Is the post-voice mobile era upon us? Stats out of the UK show a significant drop in the number of voice calls both pre- and postpaid users are making each week. Last year, prepay users made an average of 14 calls per week; this year, it’s down to 10. Postpaid users similarly fell, from 35 to 27. Prepay users’ texting levels held steady, but postpaid users are now sending almost 50% more texts each week.

What’s interesting is this is happening as voice prices are falling, too — resulting in significantly lower spending, according to the survey. It says prepaid spending is down from ¬£19.29 per month to ¬£12.35 per month, while postpaid is off 20 percent. I’m not sure just how much I buy into the spending figures, though, as looking over the ARPU stats for Vodafone and T-Mobile for the last couple of years don’t show a similar level of disruption (and their subscriber growth doesn’t make me think people are flocking to cut-rate providers).

Anyhow, it’s worth noting the apparent drop in call volume. People are talking less, texting more — and, hopefully, using more data services in spite of the tariffs. To our readers in the UK: are you talking less, or have you noticed any change in people’s behavior? Perhaps we’re running out of things to say, or are even more fully embracing the brevity and non-verbal communication offered by SMS, email or IM. Maybe people are figuring out that they want to talk less on their mobiles, and do more with them.

[MobHappy]
1:23:40 PM    comment   



Emerging Markets Call For Novel Thinking, Not Just Basic Products.

1200.jpg Last week, Nokia announced several new handsets for emerging markets. At first glance, they look like what you’d expect: basic devices without the flashy features of the company’s high-end handsets. However, a couple of the most basic-looking, the 1200 and the 1208, have some cool features of their own that should give them a boost in emerging markets.

First, they support multiple phonebooks — a nod to the fact that in many developing nations, a single handset is shared among several family members or friends. The handsets allow for up to five separate phonebooks that can be managed individually, letting users have their own list of contacts, if not their own phone. Second, they have a call-tracking feature, which lets users set the maximum cost of a call before dialing. This lets users control their spending, but it also helps empower the entrepreneurs in these markets that buy a phone and airtime credit, then resell calls. Two small and superfluous features to those of us in developed markets, but two simple innovations that highlight how creative thinking can triumph even in the most basic of mobile environments.

Neither of these devices are going to have the likes of gadget-site writers writhing in the throes of lust, but these sorts of small innovations will make a big difference in their intended markets, and show the continuous improvement that’s possible on the most basic level of this industry.

[MobHappy]
1:19:43 PM    comment   



Virgin Media Q1 ñ The Lady Doth Protest Too Much, Methinks Another quarter, another Virgin Media conference call, another tantrum thrown at Sky. Personally, I think it is all getting a bit ridiculous especially given that most of the current Virgin Media problems are self inflicted.

Balance Sheet

The Cable Industry loves leverage: this has been the case since the early days of US cable and the model was perfected by John Malone at TCI over many decades. The theory goes that the interest payments eats all the profits and therefore no tax needs to be paid over to the government. The cashflows guarantees the debt and the cashflows steadily rise over time given that monopoly rents can be extracted by addiction to the tube. The leverage leads to greater shareholder returns on a percentage basis than a non-leveraged business model, especially as the business is valued on multiples of cashflow.

The corollary of this is that in times of falling cashflows or rising interest rates the equity can easily and quickly be wiped out and the debt holders take over. This is what effectively happened in the UK Cable Industry a few years ago: ntl ran around buying as many cable systems as possible using bondholdersí money and then didnít generate enough cashflow to keep the bondholders happy. The bondholders effectively took over the company, installed new management, bought the only other UK Cable system of any serious size, bought a MVNO to give it an ultra-fashionable quad play and more importantly a fresh brand.

So at the end of Q1, Virgin Media had net debt of £5,747m with a weighted average cost of debt of 7.9% which equates to around £454m of annual interest charges. Most of the debt is in US Dollars and floating rate, which probably means the skills of the Virgin Media Treasury department in predicting future interest and exchange rates are far more important than any contract negotiations with Sky.

Cash Flow

Virgin Media love to use OCF metrics which they claim is a good measure of the underlying performance of the business. However, Iím old fashioned and prefer to look at the Cash Flow Statement, which shows net cash provided by Operating Activities of £106m, whereas net cash used in Investing Activities is £147.9m. This implies a cash outflow from the business of £41.9m before interest charges of around £110m.

This is really, really important because if things continue as in Q1 Virgin Media will not be around for much longer without generating some cash or changing the capital structure of the business. Of course, the extremely poor Q1 cashflow could be due to seasonal factors, however if we look at Q1 2006 net cash provided by operating activities was £207.3m and capex was lower than in 2007. So Q1 2007 was not a blip.

The Virgin Media capex statement in itself is extremely interesting because it shows that they are capitalizing the cost of CPE or set top boxes. CPE accounted for £62.5m out of total quarterly capex of £152.9m . Another way of looking at this is that CPE costs do not feature in the Virgin Media OCF calculation as they are depreciated below the line. As far as I aware, BSkyB immediately write-off the cost of CPE as part of subscriber management costs and in fact ownership of the box transfers to the customers. It is hardly surprising that BSkyB charge for their HD and Sky+ boxes, whereas Virgin Media give them away like candy.

Even more interesting is that Virgin Media only spent £3.5m on upgrading or rebuilding systems, with an additional £15.4m spent on ìscalable infrastructureî ñ this is hardly the spend of a cable company busy upgrading its systems getting ready for DOCSIS 3.0 and 50meg to the home. In fact, it smacks of a company spending the absolute minimum to keep things going.

TV

Virgin Media appears to have done extremely well attracting TV customers in the first quarter with 36k net adds on marketable homes of 12.7m. BSkyB added 51k TV Customers in the UK and Ireland on marketable homes of 26.8m.

In fact Virgin Media added 75.2k digital TV customers which are more than Sky added in a much smaller addressable area. However, Virgin Media lost 39.1k analogue TV customers. Sky can hardly be blamed for Virgin Media still having 309k analogue customers, even after a decline of 220k year on year.

I would argue strongly that Virgin Media should be upgrading its network and customers and then we could compare apples with apples in the payTV market.

Telephony

Telephony is an area that Virgin Media are struggling after losing 182k customers year on year. Unbelievably, Virgin Media donít blame Sky for their problems, but instead focus on Carphone launching the free broadband offer which I think is also missing the mark. Instead they should be focusing on their own actions: to go a full twelve months without reacting and not expecting major churn is more than a little naÔve.

I estimate that Virgin Media still have around 398k single play telephony customers which is a drop of around 235k y-o-y (bear in mind some of these customers could have been upsold broadband or TV as well as others churning off the network). Virgin Media were charging these customers £11/month line rental + call charges ñ obviously there was better deals in the market. These 398k telephony only customers and additionally the 309k analogue TV customers represent the soft vulnerable underbelly of the Virgin Media customer base.

Broadband

Someone on the call questioned the Virgin Media net adds in on-net broadband being quite low at only 89k as a percentage of the overall market - Iím not so sure. The broadband penetration of homes passed of 26.7% is actually really good and I think cable broadband must be outselling DSL in most common areas. I tend to agree with the Virgin Media Executives that broadband is potentially the Virgin Media ace in hole, but I am a little concerned that they will lose the advantage over time through a lack of investment in capex.

First of all, Virgin is keeping quite mum of the roll-out plans for docsis3, but making lots of noise about 50meg to the home. It seems obvious at least to me that in its current state Virgin Media canít afford a rapid nationwide rollout of docsis3 technology to the UK.

Second, I am concerned about the recent capping applied to heavy downloaders. In a scenario where there is no capacity constraints no capping would be required and obviously caps destroy the urban myth that the cable network is magically different than the adsl network. To be fair, Virgin Media caps are still probably the least restrictive of all consumer ISPs in the UK.

Business

Business is a very important segment to Virgin Media ñ representing £163m of revenues in Q1 compared to £637m across the whole of the consumer segment. I was extremely interested that there are murmurs that the business might be up for sale. Personally, I just canít see how the consumer and business segments could be separated. I also think that Virgin Media have never fully exploited their network assets especially in the SME sector.

Mobile

Virgin Mobile has effectively withdrawn from third party acquisition and this accounts for the falling subscriber numbers and the increased OCF in Q1. I actually believe this is a very interesting change of approach, but Virgin Media have to be really quick in building their own distribution network and gaining traction on their base. I am currently a total non-believer in the quad play, but if Virgin Media could minimize subscriber acquisition costs, allied to a very good network services contract with T-Mobile and generate enough traffic, I could be converted in the near future.

I am certain that the prepaid MVNO model that Virgin Mobile operated upon previously has a very short life span. The figures published in Q1 imply there is some pain to come in bridging the gap: a drop in prepaid numbers allied to an increase in contract customers should theoretically indicate a jump in ARPU figures. The fact that Virgin Mediaís has dropped by 5% without a big drop in prepaid rates implies to me that there is a large number of people with very low activity ñ in other words there is a big buffer of churners to come.

Content

Despite the well published drop in Sky payments, the division actually managed to increase OCF. Apparently, the increase was all due to litigation - enough said.

Overall

Virgin Media was struggling before the partially self inflicted wound of the removal of Sky Basics channels from the Virgin Media TV offering. I personally feel that Virgin Media is using Sky as a convenient scapegoat for its lack of performance in the ultra-competitive UK communications market.

The other problem for Virgin Media is that when you examine the BSkyB recent quarterly results especially when you look at their cashflow performance they are also suffering , but the big difference is that Sky are making large infrastructure investments in developing a triple play.

Another problem for Virgin Media is that when the noise abates and the economists have spent months or years studying the UK communications market, I canít see how anyone can say that that Sky is a monopolist. In fact, I wouldnít be surprised if Sky gains more flexibility because convergence has actually reduced their historical market power.

But the biggest problem for Virgin Media is that their balance sheet is based upon the premise of extracting monopoly rents from appreciating assets. Unfortunately for Virgin Media, there is no monopoly in the UK market or even a situation comparable to the US cable companies and neither is there likely to be. Furthermore, I donít believe that even political and media lobbying of gargantuan proportions will change the situation. - KeithJamesMc [TeleBusillis]
1:14:25 PM    comment   



Yet More Virgin Media/BSkyB and OFCOM It was noted during the Virgin Media conference call Chairman, James Mooney bragged that they had won every legal battle fought so far. I thought this was extremely premature.

In contrast on the News Corporation call, Rupert Murdoch, expressed his thoughts:
"I'm disappointed simply that the politicians chickened out and punt these things to these quangos."
Apart from fact that Rupert doesnít seem to have much time for our beloved regulator, OFCOM, he is digging his heels in for a long fight:
"We are not worried by any of these inquiries, however long they take. We have done nothing illegal.î
As Russ Taylor from Ofcomwatch points out the hottest document in the country, which is the actual Virgin Media complaint to OFCOM, is safely under lock and key and most importantly will be kept from the prying eyes of the consumers that OFCOM purports to protect and Virgin Media are also out to protect.

Investors donít seem to be too impressed with the latest Virgin Media results with the share price down around 10% over the last couple of days. It was a good job for James Mooney then that he sold 54,748 shares on the 30th April @ US$25.49 just before the results were announced saving himself around US$100k.

However, there is good news for the beleaguered Virgin Media shareholders Ed Richards CEO of OFCOM, on a recent jolly to the States, unbelievably said in talking about broadband -
ìSo we have to encourage consumers to pay more ñì
Thanks Ed, glad to see someone is looking after Joe Public.

PCPro perfectly sums up the current status of Broadband Britain for which Ed thinks we should be paying more for:
So, to summarise, broadband customers aren't sure what speed of service they're buying, are suffering from slowdown at evenings and weekends, are left in purgatory when their ISP goes belly-up and, worst of all, there's no real prospect that things will get better any time soon.
In the speech Ed was basically putting forward the case that no taxpayer investment was required in broadband - with which I broadly agree. However at the same time he is still touring the UK trying to drum up support for his ridiculous taxpayer funded £300m injection into the web content industry aka the Public Service Publisher - with which I vehemently disagree. - KeithJamesMc [TeleBusillis]
1:03:40 PM    comment   



Yahoo - Comcast = The Deal of the Year. Little has been written about yesterdays announcement that Yahoo would be selling display and video ads for Comcast's websites, in particular, Comcast.net.

What's so special about this deal beyond the shear size of Comcast and the inventory it makes available to Yahoo to sell ? its the network stupid.

The one thing that Google doesn't have is a contained network. Comcast does. The implications are significant.

For the first time, an advertising monetization platform, such as Yahoo's Panama, can be integrated into a NON internet video platform. When Comcast serves video from comcast.net to its own high speed data customers, those are NOT internet customers. They are private network subscribers. The vagueries and uncertainties of the internet are gone. Comcast has the ability to control and monitor the quality of service in the delivery of the video content from the host on its network to the user destination on its network. Its the equivalent of offering services on your corporate network. The opportunities far exceed what are available on the general internet.

In short, Yahoo and Comcast can start working together to develop video content and ad platforms that Google can't touch. Any video that is streamed from Comcast.net can be streamed at bit rates that match the user's throughput, including commercials. If Comcast can deliver on demand video at full DVD quality to PCs, it can deliver commercials at that quality. All without ever touching the internet.

More importantly, since all the users of Comcast.net video are Comcast customers, the two companies can work together to leverage customer data (within privacy limits) to deliver ads that are not only personalized, but also can evolve to be "over the top" of the set top box and be delivered to the TV in the future using Comcasts future switched digital capabilities and OCAP features.

Together Comcast and Yahoo have created an advertising playground that could potentially define the future of advertising on the net. Rules that even Google and Microsoft would have to follow.

The competitive landscape for video advertising just changed, and no one even noticed.

Of course, it still doesnt create enough bandwidth for the delivery of HDTV over the net, nor does it fix Comcast's problem of not offering HDNet and HDNet Movies to its customers, but thats a topic for another blog.



If done right, this is the first step towards integration of integrating advertising from websites
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[Blog Maverick]
12:58:36 PM    comment   



"Internet 2.0" will create a shift away from PCs, Zander says. Video: Video: "Internet 2.0" will create a shift away from PCs, Zander says. At the Software 2007 conference in Santa Clara, Calif., Motorola CEO Ed Zander talks to program host M.R. Rangaswami about the shift toward mobility within the enterprise. He also discusses the competition his company faces from Apple's iPhone.
[CNET News.com]
12:49:44 PM    comment   



Is SMS under threat?.

One of our Telco 2.0 event speakers, Tomi Ahonen, has written a passionate eulogy on the end user joys of SMS. We’re soon publishing our Consumer Voice & Messaging 2.0 report, and have been looking at the evolution of arbitrage and toll bypass schemes. Will the future be as rosy for operators as it is for their customers? Could SMS revenues be under threat despite growing volumes and adoption?

At the event we ran some survey questions on the first day with the full plenary audience. Given that SMS is a super-high margin product delivering between a third and half of most mobile operators’ profits, we asked if this service could be Skyped? These alternative services let you connect to a third party SMS gateway over the Internet (using GPRS, 3G, or Wi-Fi) and send SMS messages at well below standard operator prices. It’s much more plausible than VoIP displacing mobile voice, since there are few quality of service issues sending a one-off message.

The question we asked was:

What proportion of SMS messages will be originated from non-operator third-party services in 5 years time?

The results were quite interesting:

There seemed to be little consensus among the participants of whether the threat was real, and if so whether it was small or large. Each respondent was also asked for a reason why they chose their answer.

Those predicting a smaller haemorrage of customers to rival services cited several common factors:

  • users are too lazy or indifferent to the cost of SMS to try lowering their expenditure
  • there will be a general move towards IM, which will regulate costs and provide a richer alternative
  • spam and privacy concerns will keep people away from non-operator services
  • operators will just drop prices given any competitive threat

Those citing a larger threat suggested that messaging will be embedded in 3rd party applications, notably social networking services, and that operators will lose control of the context from which messages are initiated — as well as the revenue.

A common theme on both sides was the user experience. Those predicting a low rate of defection cited poor experience, whereas those forecasting some of the telepocalyptic scenarios felt it would come right over time.

We’ve been using a couple of such services recently. Given it costs 40p (about €0.59 or US$0.80) to send an SMS when roaming, we’ve had plenty of incentive. I’ve run out of credit on Vyke having used it a lot, and Jajah only lets me initiate voice calls, so we’ve screen captured all the stages of sending a message from smsBug instead. They all have a fairly similar user experience.

I’ve not included any of the sign-up and installation stages, as we’re assuming users will put up with considerable one-off inconvenience to switch (usually by handing a bank note and phone to a nearby youthful technophilic relative). You set up a pre-paid balance on each of these services, and download a Java client onto your handset. It’s not difficult.

We’ve laboriously documented all the steps, as there are more than for the standard texting experience.

We start from the home screen on my smartphone. I’ve set up smsBug as the (pretty horrible) second icon in the quick access row — the pair of bug eyes. I could have assigned this to the standard messaging hotkey — but we’re relying here on users knowing how to do quite advanced customisation to their phone UI. This isn’t part of the “out of the box” install (and probably never could be on the current generation of phones and Java.)

For some reason the message editor starts with the last message you sent, so you have to do a bit of selection and deletion to get rid of it.

Enter a new message — all standard text entry using native UI features like predictive text.

Then we select the options hotkey which gives us this menu. Somewhat strangely the next step is “send”, even though we haven’t entered any recipient details. And we now discover a “clear text” option, which isn’t visible or obvious to the user on first using the application. (You could fix this with a “select ‘clear text’ option from menu to create new message” down the bottom of the screen when the application is first used.)

A blank screen to type in a number.

We select the option to add a contact from the address book.

Pick the user using the native UI.

Pick the number. Note the boilerplate text glitch in that the UI assumes the purpose of an address book is to support calls, not messaging. (I really must delete that old Kansas City office number — I never look at my own address entry in Outlook!)

Now we’ve got our destination number. Unlike the native SMS user interface, you can only enter a single recipient.

Now send the message. This time “send” means “send”.

Ah, so as we’re going to use the 3G interface, we have to give this Java application permission. Every time.

And also select which access point to use. This is really the fault of the Symbian UI in not giving me more configuration control here. (“If in UK, always use T-Mobile”.)

Now a wait… This has taken up to 25 seconds before now.

A message briefly flashes by with my remaining balance and we’re dropped back into the message editor — unlike the native UI, it’s another keystroke to exit to the idle screen.

The service works — one new message.

And here it is:

None of this is integrated with the rest of the messaging UI of the phone. Your message won’t be stored in the outgoing messages folder. (The story for email is just the same — I have a 3rd party email application installed, but if I select “send via email” for an image I’ve snapped, the only choice is the native email UI, which isn’t configured in my case to send to anyone.)

Overall, I’d say that it’s worth jumping all these hoops to save yourself the best part of a dollar for sending a single SMS. Even when roaming, the combined cost of the bypass service and packet data charges are only a tiny fraction of the roaming messaging charge. I’ve found the services to be as reliable as those of the operators: even when sending “native” SMS when roaming, I’ve had messages fail to be delivered.

The real threat to operators was identified earlier. The owners of social networking applications will replicate these small arbitrage businesses and integrate them into a much slicker user experience. As SMS is hybridised with instant messaging they will also arbitrage termination charges when messages can be delivered over IP to a phone or PC.

Alternatively, as Truphone has done for VoIP telephony from mobiles, it gets integrated with the native UI and the user sees no difference except the price.

In the meantime, services such as these will put pricing pressure on the high-margin users (roaming, prepaid), and encourage the adoption of large or unlimited buckets of messages.

In either case, the SMS party may not be over, but the DJ has finished playing upbeat house music and is starting to rifle through his blues collection.

[Telco 2.0]
12:46:48 PM    comment   



Death of the SIM card?.

One of the topics which came up in the ‘Digital Worker’ stream at the recent Telco 2.0 event was the role of the mobile operator and their SIM card. We asked Colin Mallett, our ‘analyst-in-residence’ for that session, and who spent many years working in R&D for BT, to share his thoughts with us:

“10 years ago BT started looking at a new kind of player called the ‘SoftTelco’. Later, with a multi-million pound R&D budget, we tried to implement some of the ideas, eventually ending up in the Brightstar incubator. This included looking at MVNOs and how to by-pass the Mobile Operator’s SIM.

The GSM SIM card uses tamperproof silicon to provide the client for the mobile operator’s Home Subscriber Subsystem (HSS). It provides a strong authentication token which can be managed securely over the cellular channel. This is a powerful platform which binds the user subscription, handset and network together.

Unfortunately, as readers of this blog know all too well, this sort of tight commercial and technical integration is being ripped apart by IP. It’s happened in fixed telephony with VoIP and it’s soon going to come to mobile - by around 2010 or 2011 according to a recent Telco 2.0 survey - even if, in the short term, operators ban VoIP from their ‘unlimited’ data packages.

So, are SIMs really appropriate for supporting converged services, especially on laptops or on the new classes of Mobile Internet Devices?

SIM Is Good…

The beauty of SIM authentication is that you switch on and a few seconds later you have a connection - more or less anywhere in the world. The whole process is hidden from the end user and everyone takes it for granted. Only traffic over the cellular interface is encrypted, but that is optional for the local mobile operator. So, for end-to-end IP data traffic to remain fully secure, familiar techniques such as the Transport Layer Security protocol (TLS) are still needed. While automatic and secure WiFi authentication is more complicated, it can be achieved if an application is linked to a SIM card (and TLS or IPSec protocols are employed).

…But is Under Attack…

So if the SIM card is so effective, why is it threatened? Mobile operators don’t want to give up the tight control that SIM’s give them, especially in the face of a growing number of MVNOs in increasingly saturated markets. For the majority of operators, in voice and messaging in particular, their reaction to the developing Telco 2.0 trends is to defend against convergence rather than embracing it, which giving open access to WiFi via 3G and HSDPA implies.

…It Hasn’t Evolved…

Over the last 5 years, compared with on-line transactions, SIM based mobile-commerce has failed to take off, partly because the mobile operators and payment card issuers have not been able to agree on appropriate business models and partly because the payment companies have not been able to accept that their logo should not appear on the physical card.

As a result, multi-application SIM cards have never appeared and the SIM has been seen as a blocker to progress, stimulating multiple research projects to bypass it.

..But Other Technology Has…

DeviceDiagram.gif

For many years, handset manufacturers opposed the dual-slot phone - one for the SIM and one for the credit card. However, the battle is now lost. In the diagram above, the mobile handset looks remarkably like a computer with added Cellular and WiFi modules. A second slot was originally needed for removable media to store photographs or music. Now it can take a ‘secure’ MultiMedia Card (SMC) consisting of a flash memory device combined with Java Cardâ[greater equal]¢ smart card silicon.

This, of course, could include banking credentials with the SMC even bearing the financial card issuer’s logo. Although the SIM card is still required for access to mobile networks, the SMC can run all the added-value applications and the processor can run secure automatic WiFi authentication processes and banking applications using SSL.

So, in this scenario, the poor little SIM card supports its original function, but is surrounded by modules and connections that bypass it for everything except connection to a mobile network. The cellular data connection is merely one channel through which servers can be reached securely.

SIM cards are fighting back by adding large amounts of flash memory (512 Mbytes), a high-speed USB interface and a Web server. In all these scenarios, the card manufacturers will grow their businesses.

Gorillas Entering the Fray

Compounding the issues, Intel is working on an Identity-Capable Platform (ICP). The ICP will be a secure hardware area in a processor which supports future converged mobile wireless security and high-value, trusted services including secure access to any device, network or service.

For mobile handsets and possibly other devices such as home gateways, ARM has an equivalent technology called TrustZone. This provides a secure hardware execution zone and memory partitioning. Many silicon vendors are licencing TrustZone. These innovations make possible the advent of downloadable SIM-style applications that could replace the need for a physical SIM card.

What Does the Future Hold?âo¢

- The SIM: will co-exist with its cousin the ‘softSIM’. New items will appear, like the ‘secure’ MultiMedia Card (SMC).

- The SIM vendors should do well: They will broaden out and embrace convergence. They have huge experience in securely issuing and managing trusted silicon devices. There is no reason why they should not turn their attention to provisioning and OTA (Over-The-Air) management of secure solutions, such as credentials on ‘soft SIMs’ or trusted platforms like the Intel Identity-capable Platform.

- The SIM card: will continue to be made and used, but will become a low value commodity item, always competing against managed secure intelligence in the mobile device.

- The mobile operator: will no longer be ‘in control’. They must embrace convergence fast.

The SIM is a wonderful platform, why restrict it to mobile operators!”

[Telco 2.0]
12:43:06 PM    comment   



SoftBank Mobile White Plan Results. SoftBank Mobile has announced that the number of subscriptions for the companies âo[ogonek]While Planâo? has exceeded four million on May 3, 2007. Originally introduced in early January, this simple price package offers a monthly basic charge of Â¥980 with free domestic voice calls between SoftBank Mobile users from 1:00 to 21:00, and for domestic voice calls other than those it charges a tariff of 21 yen/30 sec. In addition, text messaging between 3G users is, with some restrictions, free of charge. [Wireless Watch Japan]
12:28:41 PM    comment   



SoftBank Announces FYE 2006 Results. Softbank Corp. announced their FYE 2006 results yesterday indicating that the parent companies fourth-quarter operating profit more than doubled YoY after buying Vodafone mobile-phone unit last spring. The entire presentation video is available in English Here. The 1.66 trillion yen acquisition made Softbank the second-fastest growing company in sales terms on the Nikkei 225 Stock Average for the fiscal first half ended Sept. 30. Operating profit rose to 73.8 billion yen ($615 million) in the three months ended March 31 from 34.4 billion yen in Q4 2005, while sales more than doubled to 721.9 billion yen from 298.4 billion yen, according to Bloomberg. [Wireless Watch Japan]
11:48:52 AM    comment   



MIH Launches Payment Module, Social Net, Classified Search And More.

MIH India has launched another payment module called ibQash for users of their social media portal ibibo. Users will be classified in six âo[ogonek]leaguesâo? based on the level of activity on ibibo, which determines the quantum of payment to users. The other payment module âo?Great Indian Blogger Huntâo? had issues of some people copy-pasting content from elsewhere, and ibibo has asked users to report abuse. Still, I remain skeptical about the whole concept of paying users to blog - money doesnâo[dot accent]t buy loyalty. And how feasible is it, since this is not an advertising revenue share - itâo[dot accent]s an out-and-out payment for usage...anyone remember the defunct Mailmetoday.com from the India Today group?

Ibibo has also launched polls - both online and mobile - and a classifieds search for cities, jobs, restaurants and (surprisingly) matrimony, called âo[dot accent]dwaarâo[breve]. Gaming sites chotafish and motafish are now ibibo kids and ibibo games respectively.

The more interesting initiative is a social networking site called Cafe ibibo, that requires users to disclose and verify their mobile number, and is hence positioned as being âo[breve]saferâo[dot accent] than other social nets. There are some usability issues and bugs, though - I couldnâo[dot accent]t figure out how to upload my photo directly to my ibibo cafe profile. Someone sent me a friend request, and when I checked the profile, it still displayed my name with his profile.  There are no groups yet at Cafe ibibo. I also noticed two more sites via the footer at bixee.com (which MIH acquired) - classifieds listing Apnamarket.com and questionbank.net.

By nikhil@paidcontent.org (Nikhil Pahwa). [contentSutra.com]
11:37:22 AM    comment   
 Saturday, March 31, 2007



Why the NBC/Newscorp Video Venture is a Great Idea.

I have no idea what the traffic will be for this new venture if they create a single destination site. I have no idea what the traffic will be for video hosted by the distribution partners they signed up, Yahoo, MSN, AOL and Fox and NBC/Universal sites themselves. Individually they certainly will trail Youtube in traffic. In aggregate, it has a chance to surpass Youtube, but we won't know this for a long , long time.

Here is what I do know.

1. Because Gootube has chosen to hide behind the DMCA, it can only sell advertising around videos it has a license for. That means their inventory is limited, which in turn limits its ability to try new things and to make big sales. If the core competency of Google is to sell advertising and the foundation for the Youtube acquisition was to invent and deploy new and exciting forms of video advertising, that goal just took a huge hit.

This new venture, if it can launch in the next few months, will hit the ground with more and better content, and more monetization options than Google. Its a unique opportunity to set the rules of how video advertising is sold. Something Google thought they had wrapped up when they bought Youtube.

Whether Newco can live up to Google in terms of performance and innovation is another question, but they are going to have every opportunity to do so. Hiring some folks away at Google for stupid money would seem to make a lot of sense at this point.

2. Youtube's 10 minute limitation will put it at a disadvantage. Newco's distributors will have access to full episodes in addition to clips and user generated content beyond 10 minutes. This will give viewers much greater choice and could steal users from Youtube for this reason alone. It may force Google to combine Google Video and Youtube. It also will provide more options and flexibility for advertisers.

3. What may turn out to be the biggest problem created by Newco is the new competition for content from major content owners. Rather than Google walking into meetings as the only kid on the block, Newco can offer an alternative from the mindset of a content provider. It will certainly impact the terms and cost of content for Google. The good news for Google is that it may accelerate their ability to get deals done with people who dont want to partner with Newco for whatever reason

4. If the future of the net is video, where does this put Google Search ? Google Video Search right now plays in a walled garden of indexing and returning results only for Google Video and Youtube. How long will users give them a pass for this ? The distributors of content from Newco all have some level of internet video search, I would expect that they will start making an issue of this in advertising and promotional campaigns..."There are X million number of websites with video on them, Google Video searchs 2 of them..."

This new venture is about so much more than who can get more traffic. It was a very smart strategic move to put significant roadblocks in Google's path, while paving a way for those involved with Newco to give users and advertisers what they want from Online Video.

But as always, concept is one thing, execution is the bottom line

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[Blog Maverick]
11:09:36 PM    comment   



The TV Guys Aren't as Stupid as You Think.

With a few notable exceptions, the blogosphere is, predictably, dumping on the NBC-News Corp. announcement of a new video distribution service. Don't be so quick to write it off.

There are two ways to build an audience: aggregation and syndication.

Aggregation means bringing everyone to you. It's what the broadcast networks do on television, and what YouTube does on the Web. It's a two-step process: build scale, then monetize. I think most people get this model, although doing it effectively (especially the second part) is harder than it seems.

There's also syndication, which means distributing the content (or applications, or transaction opportunities) to where people already are. TV content producers do that too -- in fact, they largely invented syndication as a business model. And YouTube syndicates as well. I rarely go to the YouTube.com website, but I watch lots of YouTube videos embedded on blogs and other sites I visit. However, YouTube's revenues primarily come from leveraging viewership into visits to the central site, which creates and advertising and transaction opportunities.

The new NBC-News Corp. venture is all about syndication. They are getting beaten up for not having a name for the website, but as they made clear at the announcement, the central site is almost an afterthought. The core of the effort is syndicated distribution through a network of partners, like Yahoo! and MySpace. This is smart. Putting only some popular content into the syndication pipe isn't smart, but I predict that if the effort takes off, that limitation will go away soon. Notice that lots of midsize media companies are already syndicating through third parties, like Voxant and Brightcove. An effective monetization ecosystem for content needs three things: platforms, standards, and tracking data. That's what the current efforts are working towards.

Put aside the copyright rhetoric, which I agree is still overblown. This debate has never really been about "piracy" -- it's about business models and strategy: How big is the pie, and who gets which pieces. Don't underestimate the significance of big traditional media players acknowledging they need to follow their users to the Web.

[Werblog]
11:05:13 PM    comment   



NY Times Spectrum Article.

I'm quoted in John Markoff's New York Times article today about the 700 MHz spectrum auctions. The column grew out of a spectrum policy discussion I led a workshop last week, which John also attended.

My quote compresses a longer point I made, which hopefully comes through. It's that the direct transactional price of acquiring a spectrum license may not accurately reflect the economic and social value of certain spectrum uses. This was a key point of my Supercommons law review article. The 2.4 GHz spectrum where WiFi operates was considered worthless "junk" spectrum due to interference, but opened for unlicensed use, it is the foundation for massive investment and economic activity.

[Werblog]
11:02:15 PM    comment   



Amp'd Mobile Launches in Japan. WWJ Editors, 25 March 2007
As announced last November Amp'd Mobile rolled-out in Japan this month via a new portal service designed exclusively for KDDI subscribers. Amp'd Mobile-Japan debuted with its first "Amp'd Original Presentation" called Boston Gyro: The Big League Report provides real-time baseball reports covering Japanese players in the US from sportswriter Dan Shaughnessy of The Boston Globe. All Amp'd Japan content is delivered in Japanese or in English with Japanese subtitles. [Wireless Watch Japan]
9:36:53 PM    comment   



Encouraging MediaFLO Survey Results. WWJ Editors, 27 March 2007
QUALCOMM and KDDI established MediaFLO Japan together in December 2005 and have announced the first results from an extensive consumer survey of attitudes towards mobile TV. The survey, which was conducted by Accenture Japan and included more than 3,000 Japanese consumers, showed that subscribers are far more likely to take up mobile broadcast services when they experience it firsthand. Survey results after the jump.

[We noted in a recent WWJ newsletter that new digital tv spectrum allocation from the ministry is under review and the various lobby groups are in full motion to state their case -- Eds] [Wireless Watch Japan]
3:30:11 PM    comment   



Xcerion makes Internet OS real.

Internet OS sector seems to be getting increasingly crowded. Start-ups such as YouOS, EyeOS are vying for mindshare with Internet giants like Google. The seriousness of market is reflected by the fact that earlier this month, Microsoft set up an all-star group to tackle the Cloud OS opportunities.

xcerion.gifA dark horse in this race is Xcerion, a Swedish start-up that came out of stealth earlier this month, and announced its XIOS, its XML-based Internet OS, and got subtle tip of the hat from some of the most respected technology pundits.

Xcerion, now about five years old has started out as a company developing a friendly user interface for enterprise resource management systems, has developed a back-end software infrastructure was offering a two megabyte download that looked and mimicked any regular desktop OS. They claimed it took less than five seconds to boot up, and was able to offer applications that did most things we expect from apps on a desktop.

Too good to be true? That was my initial reaction, though my skepticism was allayed by the that Xcerion counted Lou Perazzoli, a former Microsoft distinguished engineer and one of key architect of Windows NT, and John Connors, former Microsoft chief financial officer was an investor. These two, clearly are two people who know operating systems.

It also helped that a Swedish venture capital group, Northzone was investing $10 million in the company (PDF), and the much-respected Mary Jo Foley, who despite similar trepidations about the company, had given it subtle thumbs up.

Xcerion’s technology falls in the category of “seeing is believing” products. (See the gallery of exclusive screenshots at the end of this article.) Daniel Arthursson, CEO of the company demoed the product, and it was a jaw dropping moment, when skepticism gave way to tempered enthusiasm.

The little OS worked as promised over the pokey Starbucks wireless connection, and for a few seconds I did forget that this was coming off the Internet and windows running locally.

He showed me an Outlook-type email/day planner app, a RSS reader, a word processing application, an Excel style spreadsheet application and a bunch of other small applications. “You can continue to keep working in our XIOS when offline and the information is synced when you connect the next time,” says Arthursson.

The entire application can be customized [base ']Äì developers can create skins that resemble MacOS, BeOS or even bring back some of the old OSes that are now long forgotten. (OS/2 anyone?) XIOS comes with a visual application development environment which can be used by anyone to create small applications [base ']Äì lets call them widgets [base ']Äì which can be completely bespoke or sold to others.

“XML was the only way for us to keep the download small enough and also be able to reuse the code when creating new applications,” says Arthurson. Xcerion is going to launch in the third quarter of 2007, and has developed the backend technology, that runs on servers using Ubuntu Linux. The company is putting scalable data centers in place to be able to handle all the heavy lifting.

Imagine this application married to say Nokia N800 tablet? It could be a full-fledged computer in your pocket [base ']Äì all you need is a decent Internet connection. Or XIOS embedded on a cheap $100 laptop that can be used by schools or kids in the emerging economies? There are many possible scenarios, but lets wait for the XIOS to be released: we all want to see it to believe it!

[GigaOM]
3:29:43 PM    comment   



Apple TV in the UK PayTV market Iíve just been looking at the Apple TV box specifications all day and been scratching my head trying to figure out for what purpose the strange not-so-beastly device has been placed on planet earth. Well planet USA ñ Brits will have to wait a little longer to sample the delights.

The specifications seem horribly basic for a modern consumer electronic device:
  • a tiny 40GB Hard Disk - Iíll have that in my non-Apple phone in a couple of years;
  • a limited set of supported Video Formatsñ H.264 with not-so-Fairplay DRM and MPEG-4 Simple Profile;
  • a limited set of outputs ñ HMDI + Component Video ñ what no European SCART?
  • No modem ñ just WiFi and Ethernet connectivity;
  • No TV record capability; and
  • No DVD play capabilities
Of course, it is an esoterically pleasing little box, has a beautiful little remote and no doubt a jaw dropping user interface. One of the reasons that the user interface is so beautiful is because the functionality is so basic ñ it basically plays content that has been synched from a userís computer which in turn Apple hopes has been bought from their i-Tunes store.

It all makes sense if you look at it from a PC-centric point: AppleTV allows you to play your content on your TV as the iPod before it allows you to play your content on the go. Of course, Apple would prefer you to buy the content from its i-Tunes store, but I suspect that as with mp3ís before it ñ if you can manage to get the content onto your PC in a non-protected format from another source, then AppleTV will sync and play it.

The interesting part for me is not in slagging off the vision of Steve Jobs, but the disruptive role of AppleTV in the payTV value chain.

Although I whinge about the limited formats options, Apple puts GooTube to shame. The quality of the Apple solution is not only higher because of the formats, but because it is a download solution, it generally beats the best effort streaming network centric solution of GooTube. Also, it helps that you can play Apple content on the iPod and TV screen as well as the PC screen. The GooTube solution looks cheap and nasty compared to the Apple solution. The GooTube solution is also currently heavily subsidised by the Google search engine near-monopoly rents.

Next comparing the solution to the BT Vision solution which is basically Freeview + PVR + IPTV. Well the BT Vision box is not-so-free (£90 for installation and connection and you have to be part of the BT broadband ecosystem) and you seem to pay for content on a on-demand basis or by subscription, but the box is closed to non-BT acquired source material. However, you can record DTT content onto the larger hard drive and share it with other wifi networked devices.

The interesting part here is the relative costs of the end-to-end delivery mechanism - who has the cost advantage?
  • GooTube featuring the 100% in-house built Google Distributed SupaComputer and Advertising MegaNetwork with User provided access;
  • Apple featuring the Akamai provided Content Distribution Network and the in-house built i-Tunes store with User provided access; or
  • BT featuring the in-house owned IP-content network and the Microsoft IPTV platform with User provided access bought from BT.
In terms of devices: GooTube accepts anything, Apple sells and makes a profit on each device, whereas BT subsidises the Vision box with the ISP access fees.

The Virgin Media (cableTV) model is remarkably similar to the BT architecture and probably will be similar to the forthcoming O2, Orange and Vodafone clones ñ except theirs will no doubt feature some kind of mobile revenue cross-subsidy.

Yet to be revealed is the BSkyB model: but it doesnít take Albert Einstein to figure out the route the content will arrive and the place where it will be stored. It also isnít difficult to figure out there is going to some sort of subsidy from the monthly subscription revenues and there will also be an attempt to get incremental advertising revenue. Iím not sure BSkyB will bother with a pay-as-you-download model, perhaps very limited as per current Sky Box Office and Live Events such as concerts, boxing and wrestling but they will probably use the satellite broadcast network as a delivery mechanism.

It all makes for an interesting review of the UK PayTV market by OFCOM. From an economist point of view, how do you regulate a market where there is so much technological and value-chain disruption going on? It certainly smells like bonanza time for the crystal ball soothsaying industryÖ - KeithJamesMc [TeleBusillis]
3:28:37 PM    comment   



Google, Online Ad Giant, Looks at Radio and TV. Google’s efforts to sell radio and TV ads are mixed, suggesting that it is far from becoming a credible player in traditional media. By MIGUEL HELFT. [NYT > Technology]
3:28:01 PM    comment   



Computerworld to Microsoft: Fear the Fruit.

billandsteve.jpgScot Finnie, who recently made a public conversion to Macs over the course of three months, has an interesting, if disagreeable, piece on how Apple is competing with Microsoft more smartly than it ever has before. His key points:

• Mac is finally able to move fluidly into and out of the world of Microsoft Windows and its applications.

• Mac users are more productive than Windows users because Macs experience fewer problems. There's nothing mystical about it either. There are some obvious reasons why this is the case: The Mac is a closed hardware/software system.

• Apple is innovating not just with the software and hardware it creates, but with the value proposition it is building in the marketplace. While Macs still aren't cheap, you get a lot more bang for the buck than you once did.

But he also thinks:

Apple should create economy-oriented, business-class desktop and notebook hardware. Since Apple offers very few SKUs, it's almost impossible for enterprise buyers to save money by specifying this or that lesser feature in order to reduce cost.
While how you view the piece is going to come down to what you think of Apple more so than what you think of Microsoft—do you think Macs are more usable and more innovative?—the fact that the perception is growing that Apple products are more intuitive and better designed than Microsoft's is more problematic than M$ seems to want to realize.

In NY, it seems like Mac users are the majority, though I realize it's not the case everywhere. What's it like in your neck of the woods? Are you considering "the switch"?

Why Microsoft Should Fear Apple [Computerworld]

[Gizmodo]
3:19:39 PM    comment   
 Wednesday, March 7, 2007



The Telco 2.0 'Business Model Map': Part Four, Action stations.

In this final instalment on our Telco 2.0 Business Model Map we[base ']ll look into some of the consequences for network operators. You[base ']ll want to read our introduction, explanation and map timeline before reading this article. We[base ']re going to stick with the ten-year-out map just for sake of typographical clarity, but the points apply to the industry evolution at any stage on the way.



The opportunity isn[base ']t where you think it is



The received wisdom in telcoland is that bundling a triple/quad/n-play is the route to a profitable future. We[base ']re less convinced. A few media owners control the blockbuster content (and the rest is on YouTube); telephony [~] even with feature add-ons [~] is coming under margin pressure on both fixed and mobile; and the broadband offering just sucks up capital without giving a good return (unless you[base ']ve got a weak regulator and great lawyers).



We think the biggest opportunity lies in a different quadrant, where the apps are less tied into the network ([base "]idiot savant pipe[per thou], rather than [base "]dumb pipe[per thou]) [~] but the billing and value-based pricing remain in place.



What operators need to do is to break up the broadband business model, horizontally and vertically:



  • Horizontally break it into tiers: free (ad-funded), subload (e.g. backups), standard best-effort, priority and full [base "]QoS assured[per thou].
  • Vertically slice it so it can be packaged with devices or services as [base "]postage and packing included[per thou].






This service-funded connectivity is crucial. Today[base ']s broadband model is a user experience disaster for customers, particularly wireless ones. Users have no idea what speeds they need, how much it[base ']s costing them in metered usage, and suffer bill shock when they sometimes find out. They need a single price, all-inclusive. This is not going to displace Internet access, but complement it.



The line passes through the IMS/QoS bubble; we[base ']d see IMS being used here as a capacity reservation system of otherwise dump-pipe point-to-point links, but not as a session routing and management service (as with telephone calls).



Keep some of the pie rather than lose all the pie



This space maps directly onto our [base "]customer intimacy[per thou] and [base "]market control[per thou] axes from our Telco 2.0 Market Report strategies. (You can read a bit more in a previous blog post).





The various additional strategies in the bottom right help stretch the options for a [base "]pipe++[per thou] play that takes the basic broadband offering and packages it in different ways. The [base "]platform[per thou] strategy opens up the closed voice, messaging and entertainment platforms to outside innovation. [base "]Protection[per thou] is about cost elimination and optimising the segmentation and pricing of the low-innovation legacy products.



What do you know about your customers?



The ability to perpetuate value-based pricing is going to keep telcos in the loop. Being able to slice up the offering and precision-price and package it will be crucial to bringing all kinds of internal and external innovation to market.





Telcos with a 360° view of the customer and their full spectrum of behaviour are going to be in a strong position.



Left-field is on the left



Finally, some of the more creative business models lie to the left.



BT are already busy getting attachment rights on government buildings in the UK in return for promising to build pubic-service networks. Wireless spectrum auctions in the US are seeing similar trends with hybrid public safety and private use networks. Community-centric networking is coming of age.



The absence of cell towers, call detail records and obvious billing points is likely to scare many operators off from the Personal Area Networking ([OE]PAN[base ']) space. The lockdown of Bluetooth and Wi-Fi [~] mostly by US wireless operators [~] suggests a deep lack of ideas on how to approach this space. Most human interaction is face-to-face, not on the phone. Billions of new interactive, smart devices are going to be deployed in homes, cars and offices, and not every radio needs to be connected to the Internet. Until our personal devices can interact more fully over personal scales, we[base ']ll be stuck with autistic technology. Someone[base ']s going to get really rich here, and it probably isn[base ']t you or me.



Finally we end with [OE]Bottom-Up[base '] networking initiatives. FON and Iliad are the current poster-children for this, but you can bet there will be more entrants [~] such as BT. New models will emerge that don[base ']t require fresh hardware, but open up what[base ']s already installed. Femtocells will be deployed with new business models that reward those who create the network and have paying users roam onto your privately supplied connectivity. It[base ']s an inevitable trend of de-centralisation of management control and network planning [~] one long-ago started with affiliate partners for build-out of US networks and growing with every Wi-Fi enabled home and office.



Over to you[sigma]



We[base ']ve had a lot of fun putting together the Telco 2.0 Business Model Map. We[base ']d love to hear your feedback: does it make sense, has it changed your outlook, what do you like and dislike, where are the gaps, and how can we improve it? And if you[base ']re feeling really lost without a map, you can always get in touch.



Editors Note: We will be presenting these concepts and discussing them in detail at the Telco 2.0 Industry Brainstorm, 27-29 March, London. Details here.

[Telco 2.0]
6:07:02 PM    comment   



AT&T, Verizon Launch DVR Programming by Cell Phone. The top two U.S. wireless providers are starting to let customers use their mobile phones to remotely record television shows, hoping the new service will help them better compete against rivals.

[eWEEK Technology News]
5:59:55 PM    comment   



Voice & messaging survey: first impressions.

We[base ']ll be closing our Voice & Messaging survey early next week, so if you want a freebie copy of the summary results, you need to get going and complete it now. If you just do the mandatory questions it takes about 15 minutes.



We[base ']ve had a few surprises. Either the Prozac[base ']s been on special offer this month, or things are looking up. You[base ']re overall quite positive about revenue growth in mature markets [~] but opinions are divided. We[base ']ll be doing some [base "]slide and dice[per thou] to find out who and why.



There[base ']s a lot more appetite than we expected for operators to engage in product and feature innovation. We asked:

[base "]In competing with Internet voice and messaging services with rich functionality (e.g. IM vs. SMS, Skype vs fixed line), rank each of the following tactics.[per thou]



We gave the following options:



  • FIGHT: Rapidly improve service capabilities to include presence and multimedia features, offer a softphone/IM service, expand interoperability efforts with other carriers, lower prices and/or offer large/unlimited tariffs.
  • EVADE: Build service around unique assets like home hubs and fixed-mobile converged products. Avoid high-priced flat-rate Internet access and sell value-based bundles of services with inclusive connectivity charges.
  • CO-OPETITION: Offer a limited partnership, and co-operate only where capabilities and services don[base ']t overlap (e.g. access to pre-paid payments for premium Internet services). In-source selected products like mobile photo sharing to fill service portfolio holes. Revenue share search and advertising.
  • CO-OPERATION: Partner in sales and marketing, leave the advanced messaging, media and search/advertising services to the Internet partner, and focus on legacy voice/messaging services, billing and customer service.
  • RETREAT: Move to a pure pipe model of selling service. Use Internet brands as primary retail channel partners ([base "]Google phone[per thou] etc.), and focus on underlying infrastructure and service delivery.




To which you[base ']ve so far responded as follows:





Just under 50% of respondents so far selected [base "]fight[per thou] as the best or 2nd best option. Given the overall lack of confidence you[base ']ve expressed in the industry[base ']s future based on current trends, maybe this is a message to CEOs and boards to switch from playing defence to offence? Perhaps the Apple/Cingular iPhone is a first stage of a new features and user experience war brewing in core voice and messaging services?



We then asked about where the revenue opportunities lie, giving among other options:



  • OPEN APIs: By opening up the voice, voicemail and messaging platform with APIs to enable 3rd party services and extensions, operators can generate enough new revenues from partners to significantly offset price competition in core voice and messaging services.
  • CALLING FEATURES: A large number of users are willing to pay for new advanced calling features (e.g. intelligent call routing based on time of day, calendar, recent activity with caller).
  • PRIVACY FEATURES: A large number of users are willing to pay for privacy features, such as multiple or disposable numbers or temporary identities.
  • REAL-TIME SERVICES: At least one new real-time service offered by operators (other than mobile IM) will significantly increase industry revenues by achieving mass-market consumer adoption (e.g. push-to-talk, push-to-view, voice messaging).




By far the strongest positive response was to opening up the voice platform and enabling integration with 3rd party services. Compare the desire for externally-driven innovation with that of internally-defined features and services:





When asked [base "]How well do we as an industry understand what additional needs user have for voice and messaging products, over and above what they have today?[per thou] the overwhelming response is [base "]not very well[per thou]. This re-inforces the message that operators can compete directly against Internet giants [~] but to do this they must create a vibrant rival ecosystem as part of a Telco 2.0 open platform play.

[Telco 2.0]
5:52:47 PM    comment   



Sources of Value in Messaging and SMS.

As part of our forthcoming Voice & Messaging 2.0 report we[base ']ve been researching every innovative new application we can get our hands on, looking for common themes. A skill we think most operators could do more to develop is understanding what the true sources of value are in their products. The problems of MMS are the obvious case in point, but the absence of compelling examples of IMS-based use-cases beyond PSTN replacement suggests a deeper lack of insight as to what creates value and what the telco role really is.



Let me take as an example some work I did for a mobile handset vendor some time ago, decomposing the value proposition of SMS. (You can see similar work for voice services from my O[base ']Reilly Emerging Telephony keynote last year here.) Once you understand how you create value, you[base ']re in a better position to create profitable products and partnerships.



The basic misconception is that transport of the bits always constitutes the value of the service, just because that[base ']s how we market and bill for it. This results in endless analyst reports with tables like the following (we[base ']ve made up our own to protect the guilty):

ServicekB consumptionExample PricingRevenue per MB
SMS ringtone/logo0.2 kB$2 (UK)$13,981
SMS message0.1 kB$0.15 (UK)$1,573
Complex ringtone/logo2.0 kB$3 (UK)$1,536
Java download (game)15 kB$3 (Japan)$204
1 min voice call144 kB$0.10 (US)$0.71


Until you run out of spectrum or backhaul capacity there is zero marginal cost of transmission to the network owner, and capacity is a sunk cost that should be ignored. $/Mb is the worst possible metric to run a network by [~] particularly as opportunities to offload transmission of [base "]heavy[per thou] media onto user-supplied media and networks increases.



Postage and packing costs don[base ']t tell you about value. I could post you a box of gold and a box of manure, but the relative transport costs tell me nothing about the postal system or the goods. You only learn about the value of the gold by being told about wedding social customs, mining costs, secure storage costs, central banking institutions, currency issuance and inflationary effects of competing stores of value. You don[base ']t learn anything about those by looking at the value of the stamp on the box. All that tells you is gold is heavy, not why the user paid $10,000 for it.



Before assigning value to functional elements of SMS, we need to know what those elements are. In the diagram below, Aino is sending an SMS to Bo. The key components of the transaction are shown: handsets, radio networks, SMS messaging centres, long-haul interconnect, home agents/HLRs, customer database, billing and policing. Remember, the customer sees no value any of these things per se.





(The groovy guy at the bottom is a Brussels bureaucrat who makes sure that every national regulator has in place some means of dealing with nuisance users. He looks rather Walloon to me, anyway.)



Now we overlay some of the value elements:





So what does your 10¢ to send an SMS buy you? Where does the value come from?



  • The ability to enter the information into the handset, tuned for usability of text entry?
  • Is it to have it transmitted and delivered? (Think of the difference between these as being between having the package delivered to your home address and having to collect it from the depot.)
  • How much is attributable to the availability of coverage: the service comes to you, rather than you to it? The universality of the service via interconnect agreements? The ubiquity of the receiving apparatus?
  • The storage of the data sent to sometimes disconnected recipients? The resolution of mobility, delivering to the user wherever they may roam? (Think of this as the difference between a package delivered to your home address and one delivered personally to you.)
  • What value is attached to the ability to cause the recipient[base ']s handset to ring and vibrate, indicating urgency to the message? (Do Blackberry users have their devices vibrate with every email? Rarely. Why not?) Every message is billed (or subtracts from a bucket), and thus has cost which would only be incurred if the message has relevance. Without this, how do you know the recipient will bother reading messages?
  • What if the system is abused? Somehow there has to be governance, which in turn relies on some means of tracing malicious users and accountability.




You can almost imagine getting an itemised bill for each SMS, with sub-totals from 3GPP, Verisign, NeuStar, Level 3, the FCC/OFCOM/etc., Nokia and so on.



We[base ']ve not captured everything here. For example, because SMS messages always go to handsets, and handsets are personal devices with a taboo of fiddling with someone else[base ']s when they[base ']re not looking, there[base ']s a strong privacy proposition. Indeed, this is possibly the #1 driver for teen use [~] no parental oversight. Thus a [base "]value-added[per thou] combinatorial service that delivers text messages to the TV as well would be value destroying.



Cheap, open IP networks make disintermediation of carrier services possible, but not inevitable. People will continue to use SMS even when offered a free e-mail alternative. This is because e-mail does not have all the value attributes of SMS the customer desires (e.g. governance, ubiquity). It also lacks the economic structure that content and service providers need, such as premium charges to vote in TV reality shows like Big Brother or Pop Idol.



We[base ']ll look at some of the consequences of this in a subsequent post.

[Telco 2.0]
5:49:13 PM    comment   



Telco Services Survival Strategy: Open, Focused, Collaborative.

In our previous post we looked at the challenges of understanding the true end-user value in existing and new services. So what does this mean in practise for network operators looking to deploy new voice and messaging services?



Well, nobody really foresaw the rise of SMS, or why it was so compelling to users. We[base ']ve learned our lessons, but it[base ']s still hard to tell whether new services and features will be successful. Value analysis is difficult. Hence the Web 2.0 phenomenon of the eternal beta product: you[base ']re never finished, because you[base ']re always trialling and retiring features to learn where value lies. It[base ']s not embarrassing to be less than omniscient about user needs, since they themselves don[base ']t know how they[base ']ll use tools that don[base ']t exist yet.



So should you push feature innovation and differentiation? Or should you insist on cross-operator standardisation [~] raising all telco boats, but to the same level?

Our take would probably incline to the latter: the telecom industry is not about networks, but about competing distribution systems of communications services (of which networks are one essential component). The job of an operator is to make things operate. It doesn[base ']t matter too much where the technology comes from. All person-to-person technologies imply a network effect of compatibility. Telecoms is about accellerating network effects. They make good guesses of what customers want and break the chicken-and-egg problem of new communications tools [~] who buys it when there[base ']s nobody to talk to. Yes, you read it here first [~] telcos are chickens, and better for it too!



The Telco 2.0 twist, however, is that much of that commonality needs to be at the platform APIs of operators, an area they are under-investing in. APIs create option value: you aren[base ']t tied into one internally created vision of user needs. So far it[base ']s been seen as a problem of the CTO and CIO in creating a service architecture to expose the data and business processes of each operator to internal and external customers, which business development folk then hawk in a [base "]chase the buck[per thou] game of partnership deals. Only BT[base ']s Wholesale division has articulated anything like a complete business vision for a network platform independent of an in-house retail division.



(My personal belief is that the collection and exchange of presence and context data will become a big businesses, as the value of telephony moves from the call itself to getting the right timing, channel, participants and message.)



How should operators work with Internet IM providers? If much of the defensible value comes from the identity and billing relationship, then you enter into a co-operative mode. It[base ']s in MSN or Yahoo![base ']s interest to have a revenue source from mobile users, and as long as you stick to the things you do well (provisioning, care, billing) everyone wins. You[base ']re charging for access to the API to authenticate the user, because the value of that API is the business process you created to issue phone numbers, PINs, etc. [~] and the investment you have made in usability and inducing users to follow those processes. If you simply think you can hold the user captive without creating value, it won[base ']t work.



There[base ']s a lot of room for innovation as a platform provider. For example, a customer who has just signed up for a new messaging service, and who calls up for support, could immediately be routed to a tier 2 specialist in messaging for a superb customer experience, rather than wasting time explaining their problem to a tier 1 generalist who doesn[base ']t understand.



Lastly, the least glamorous parts of the value proposition can be the most attractive as businesses. Whilst recently skimming through various MySpace pages, I couldn[base ']t help but notice the huge amounts of commercial messaging spam appearing in people[base ']s public message areas. If you needed a mobile phone #, ideally attached to a SIM card, in order to comment on a public forum (even if entered via a PC), there[base ']s value in that process. A telco provides the governance capability of sending negative feedback on those who abuse their access. (This also suggests a cross-media network-agnostic future for most operators, who derive little benefit from the risk of network capex.)



So we think the critical factors for adapting your voice and messaging strategy as an operator are:
* Enable open business platforms, which touch more than just network APIs but include all relevant customer data and workflows.
* Collaborate cross-industry in the distribution of new basic features that interoperate (e.g. the ability to deposit a voicemail into someone[base ']s mailbox directly without their phone ringing).
* Stop worrying about building the ultimate voice and messaging product: it[base ']s a world of niches, and partner accordingly.



Only by understanding the limitations of the Internet model, and how they themselves create value, can operators thrive in an all-IP world. Yet it would be surprising to see the project and product pipeline governance process of most operators pay any heed at all to these strategic imperatives. (We[base ']re here to help [~] you know who to call.)



For more detailed analysis on what to do see the new [OE]Voice & Messaging 2.0[base '] report and/or come to the Telco 2.0 Industry Brainstorm in March.

[Telco 2.0]
5:33:30 PM    comment   



Telcos' Role in Advertising: Some Critical Dos and Don'ts for Operators.

We are currently finishing off our report Telcos Role in the Advertising Value Chain with support from Alan Patrick at Broadsight. It has been fascinating looking at the relatively new, but fast-growing, on-line advertising market and the nascent mobile advertising industry.



We have taken a telco-oriented approach to these markets and explored how operators might add value to what already exists (what problems do the Content and Advertising communities face that the telcos could address?) and what strategies they need to adopt to be successful in a 2-sided marketplace.



Telcos & Advertising: A First Step into a 2-sided Marketplace



In a previous post on this blog we defined the Advertising market for Telcos as being one where they could either act as enablers of better digital advertising distribution or one where they themselves provide services and content that are funded by advertising (and thus cheaper for consumers). In another recent post we also explained how Telcos could potentially become all, or part, of a platform bringing Advertisers and Consumers together. Just to clarify how new and different this role is for Telcos, take a look at the chart below:



2-sided%20market.png

In the Telco 1.0 world, operators had a simple customer-supplier relationship with their end users and value moved left-to-right with costs on the left and revenue (from customers) on the right. But in a Telco 2.0 world operators will be serving 2 customer groups who want to interact THROUGH operators with each other:



  • Advertisers who wish to use operators as a channel for their advertising and receive customer information and ad performance metrics
  • End Users who wish to consume content and respond to advertising as well as use traditional operator services. Operator services may or may not be subsidised by the advertising. Operators can choose to provide value to consumers for other people[base ']s products and services (e.g. discounted meals) or their own products and services (e.g. discounted/free voice and messaging services) as with Blyk.




Value is created on the right AND left (cost and revenue are found on BOTH sides) and operators have to manage the commercial relationships with two distinct customer groups. Thus far, the closest Telcos have got to a 2-sided market is in distributing content on behalf of content owners for which they receive a margin. But even here it is really a 1-sided market because Telcos pay the content owner (their supplier) for content and receive revenue from their customers. Also, most commentators would agree that this has not been a great success for a number of reasons. Some of these are structural (the market is not hugely attractive for Telcos because the supply-side is very consolidated and consumers have alternative free distribution channels such as the internet). Another reason why Telcos have not succeeded as content distribution channels, even when the market is fragmented such as for games, is poor strategy and execution:



  1. Too high pricing to content owners making it unattractive for applications developers and content owners to use them as a distribution channel
  2. Too high pricing to consumers so little content is bought through them
  3. Lack of an open, standardised content management platform making it expensive to create content for Telcos (especially mobile ones)




The 2-sided advertising market is substantially more complex than simple content distribution because the Advertisers will require substantially more information back from the operators and advertisers will pay operators for access to the platform - they are customers not suppliers. In return for payment, they will seek customer data and ad performance information from Telcos as well as ad-serving capabilities. But if Operators can get the Advertising model right, it could provide the impetus to grow the content market itself by increasing the volume and reducing the cost of content.



5 Strategic Questions



In our new report, Telcos Role in the Advertising Value Chain, we have identified 5 critical questions that operators must answer if they wish to carve out a successful and sustainable platform position:



  1. What sort of platform is needed to bring advertisers and consumers together - proprietary vs open, make vs buy/partner?
  2. What products/services/activities to provide in the platform - ad-serving only or a wider range of ancillary services?
  3. Whether to subsidise Telco products with advertising (ad-funded services) OR help others to reach consumers more effectively (enable others to subsidise their products/services) OR do both?
  4. How to price services for both sides of the market?
  5. How to avoid being enveloped by rival platforms?

    We will be debating these and other issues at a workshop on 29th March in London as part of the Telco 2.0â[greater equal]¢ Industry Brainstorm event.




The Advertising day is invitation-only, as we want to get the right people along from operators, internet players and the advertising world. I have sent invitations out to a number of people, together with a link for registering.



If I have missed you out and you would like to attend, then contact me and I will send you the link to the registration page.



What sort of platform - proprietary vs open, make vs buy/partner?



I am not going to give you the STL Telco 2.0 response to all the questions - you can buy the report and/or attend the workshop for that. But let[base ']s take a look at the kind of platform that operators might want to develop or participate in.



The first thing to be aware of is that in a platform world scale is king (see chart below). If operators can[base ']t develop or participate in a platform that brings together large numbers of uses and advertisers then they will fail (either individually as a company or collectively as an industry).



Platform%20Scale.png



Scale is particularly important in the on-line and mobile advertising markets for 3 reasons:



  1. The cost to users and advertisers of having relationships with multiple platforms is relatively high:
    • Advertisers cannot justify developing multiple advertising solutions for different platforms, they want a single standard platform which will enable them to maximise reach cost effectively
    • Most users will not have multiple telco accounts for broadband or mobile services in order to extract the best ad-funded deals
  2. The effect of [OE]The Virtuous Circle of Scale[base '] is strong in this market:
    • The biggest platform(s) can offer the best economic incentive to advertisers and users so there is little incentive to go to a smaller platform
  3. There is little evidence of a strong preference for unique platform features:
    • To date, there has been limited evidence that specific users or advertisers have discrete needs that can be served with smaller, differentiated platforms (though this may develop over time with, for example, specific business traveller advertiser platforms springing up)
    • Having said this, Google was not first to market with its on-line search platform BUT developed scale by meeting the needs of searchers more effectively than its rivals




We believe that operators have 4 strategic options for developing a Telco advertising platform:



Platform%20options.png



So which is the right one? Well in the report we have a set of structured evaluation criteria and I am not taking you through them all here. But, suffice to say, our view is that if the Telco communities want to go down a proprietary route, then they need to partner with an existing big platform player. We have identified a number of risks with this approach and suggest that if this is the chosen option then Telcos execute this partnership very carefully to avoid being marginalised. Caveat emptor applies when partnering with the internet players in this space.



If operators elect for an open platform and develop a shared set of standards then we believe the upside is potentially higher for them - a bigger slice of a big pie. But the execution risks of this approach are probably higher as delays in developing the standard platform could mean they miss the boat altogether.



I am looking forward to feedback, discussion and debate when we present our research on this at the workshop.

[Telco 2.0]
5:02:14 PM    comment   



The Fragmented World of On-Line and Mobile Advertising.

As we prepare for our big [OE]Telcos in Advertising[base '] workshop on 29 March, here are some thoughts:



What we need to do is learn to work in the system, by which I mean that everybody, every team, every platform, every division, every component is there not for individual competitive profit or recognition, but for contribution to the system as a whole on a win-win basis. William Edwards Deming



For those not familiar with Deming, he is widely recognised as the man behind the massive improvement in quality and scale in the Japanese manufacturing industry after the Second World War (providing a precursor for such things as Total Quality Management and Just-in-Time in the 70[base ']s and 80[base ']s).



Current Mobile Advertising Fragmentation
His philosophy was in the forefront of my mind as I wandered around the dozens of exhibitions from companies offering mobile advertising solutions at 3GSM last week. My guess is that there is probably 100 start-ups focused on this area (and another 100 just about to launch) plus a plethora of established vendors in adjacent markets looking to position their existing offerings in this space. Several operators (O2, Orange/FT, etc.) are conducting trials with different start-up enablers to explore the required customer experience for such things as mobile portal advertising.



The Need for Scale - A Reminder
All this is natural enough, especially in the modern world where VC[base ']s are reasonably happy to back a few businesses in a hot area on the basis that one might make it big. But is it sustainable? Well, we have already indicated the Telco 2.0 view that a large-scale Telco advertising platform is key if this market is going to develop to become an attractive proposition to operators. Clearly, there is a role (and potentially an important one) for start-ups in this space but the critical thing is for operators to develop an open, standardised platform which unlocks the widest possible audience of Telco customers to advertisers.



Every other large-scale networked market has 1 or 2 dominant platforms (Windows on the PC, Google and Yahoo! on Web search, GSM and CDMA for mobile telephony, etc). At the moment on-line and mobile advertising remain fragmented from an operator standpoint:

On-Line. Consolidated Internet platform players (Google, Yahoo!, MSN) have created a valuable and growing paid search and banner market but operators receive breadcrumbs because they remain fragmented minority-players and add little value.



Mobile. Fragmented supply side (start-ups) and fragmented operators mean the market is too complex and expensive for advertisers to use as a single channel. Currently, the market is like dozens of separate channels each of which require a slightly (or radically) different approach from advertisers and media buyers.



This matters because if Telcos want to build a market which will add around 10% revenue growth (as indicated by respondents in our recent survey) then the industry needs to be worth over $100 billion to them across fixed and mobile. That is a helluva lot of money and a goal that remains out of reach with the current fragmented approach.



So What Does the Future Look Like?
One way or another, the next 3 years will see massive consolidation amongst mobile advertising enablers and either 1 or 2 will make it big or Google and Yahoo[base ']s mobile offerings will become established as the undisputed platform kings for search and banner advertising.



As for operators, the future is in their hands. For them to be sucessful they need to resolve the strategic questions we outlined in our last post and ensure:



  • They unite around a common platform - either through partnerships or through building a set of standards which allows them to interoperate and unlock the entire Telco channel.
  • They adopt advertising as a core, rather than peripheral, part of their businesses. This involves a significant effort to: work through the business models for advertising; understand how to deliver advertising to customers (and knowing which customers want what type of business model); and weave advertising into their core voice, messaging and content services so that it adds value, rather than hinders, the customer[base ']s [OE]transaction[base '] whether that be communication or consumption.
  • They can provide value off-portal to the advertising community. Operators, whether mobile or fixed, should be looking to use their position as ISP[base ']s to exploit preference and usage information that they hold about customers for on- AND off-portal activities. Operators know that their fixed and mobile customers move outside their portals and that the world of the walled-garden is becoming less secure. One way they can become more than bitpipes when customers are off-portal is become a trusted provider of selected customer information which enables content providers and advertisers to target their services for customers more effectively. We suspect that this will probably be the biggest area of opportunity for operators in the medium term, but will likely be the slowest to develop owing to greater technical complexity and the reluctance of many operators to embrace a model which at first seems to reduce their role.




Much remains to be done to be done by the Telco community to realise value in these developing markets. Management in this area should look at our new 100 page report, Telcos Role in the Advertising Value Chain, (published next week) and the workshop on 29 March as part of the Telco 2.0 event, or, if you[base ']re based in the USA, another GSMA event we[base ']re involved in on the 30th March in New York.

[Telco 2.0]
4:57:08 PM    comment   



The Telco 2.0 'Business Model Map': Part One, Introduction.

If you[base ']re heading to a new world, navigation is everything. The Vikings made it across the Atlantic without really knowing where they were going or where they[base ']d got to. Columbus got his units mixed up, didn[base ']t know he hadn[base ']t got there at first, but claimed the credit anyway. Amerigo Vespucci did make it, and got immortalised in the process (thankfully avoiding precipitating the United States of Vespuccia in the process).



The Telco 2.0 Business Model Map is our best effort at distilling half a decade of exclusively studying the tectonic forces colliding telecoms, media and technology industries, and ripping apart connectivity from application services.



Why is it important?



If you a telco exec or supplier, and are worried about structural change and Internet encroachment, you need to understand this map: the shape of the world, where the land is, and which way is up.



Where am I?
Where do I want to go?
Which way do I need to go to get there?



We[base ']re presenting this here because it seems to crop up in most consulting proposals we[base ']re writing for top industry names. One picture seems to crystallise the situation in a way that a thousand Powerpoint bullets never will.



It ties together several of the most important themes about industry change:

  • The telecoms industry is indeed in fundamental structural change [~] 90% in our survey of over 560 insiders agreed that [base "]The Telco industry is undergoing fundamental structural change - the move to a New World Order[per thou] (excuse the unintentional pun).
  • The [base "]de-layering[per thou] that T-Mobile referred to at 3GSM is the driving force.
  • This is confirmed by our survey results as well: around 80% agreed that [base "]The critical driver of change in the industry is the separation of network connectivity from devices, services and content.[per thou]
  • You have to choose which layers to play in.
  • And you have to know where to position yourself in those layers, i.e. what business model to adopt[sigma]
  • [sigma]and around 75% agreed that [base "][The new] world will require operators to compete in radically new ways with new business models. Those companies that do not embrace these will fail.[per thou]




Our telegeography course: four lessons



There are a couple of stages to being able to understand our map:



  • What the problem is with the current maps and worldview.
  • Why we[base ']ve re-drawn the world with [base "]up[per thou] in a different direction.
  • Where the land ([base "]value[per thou]) and sea ([base "]void[per thou]) is.
  • How to interpret the map to navigate your business.




Our Business Model Map is the most important article you[base ']ll probably read on this blog, so if you[base ']re short of time press [base "]print[per thou] and read this preview and the follow-ups quietly when you[base ']ve time to digest and reflect.



In this introduction article we[base ']ll bite off the first two bullets. In the main article we[base ']ll present the map itself (patience, dear reader) and talk more about its importance and implications.



Caveat explorator



As far as we[base ']re aware, this is the first such map. There are travellers[base '] tales about each of the distant lands, new islands of value arising from an ocean of opportunity, as well as cataclysmic waves of destruction. Being first, it[base ']s not a perfect map: more explorers and cartographers will be needed to complete the detail.




Public domain image courtesy of the University of Texas Libraries,
The University of Texas at Austin.



From heresy and apostacy to renaissance and enlightenment



Just as Gallileo nearly got a roasting at the stake for saying the world was round, telecom has brewed its own heretical worldviews. It[base ']s not that orthodoxy is necessarily wrong, just incomplete for further journeys from the known. A 2D worldview works for short voyages; Newtonian physics works for engineers if not physicists. In our industry, the [base "]layered model[per thou] of telecom networks as most famously espoused by the [base "]OSI 7-layer model[per thou] is a useful reference point for network engineers.



There are two heretical ideas bound up together that every reader should be aware of. If you[base ']re not, you[base ']re illiterate about telecom strategy.



The first was the end-to-end principle, which is a design principle for networks. It says that embedding even elementary service functionality (e.g. assured delivery, QoS, security) into networks generally adds little or no value. (Don[base ']t rush to cancel that IMS NGN order quite yet though[sigma])



The second was the Rise of the Stupid Network, which is a value statement that not only is it technically better to make the network dumb, but keeping the telco out of the services space is good. This is because (paraphrasing) it maximises the option value of the network to accommodate unforeseen innovation and user needs [~] and stops the interests and assumptions of telcos getting in the way of meeting them.



Together these ideas explain most of why the Internet world is encroaching on and eroding the value of the telecoms world. You probably tell the telecoms horror story to your kids at night when they want something scarier than the usual fairy tale gore.



The critical part of our map is understanding the limits of these ideas. That[base ']s where the new beachfront property will be built.



Latitude and longitude



Latitude is the easy one to measure. Just look up at the sun at midday and see where the shadow lands. (You can tell why the great explorers didn[base ']t come from a drizzly and backwards Middle Ages Britain.) The conceptual equivalent of latitude in telecoms is vertical integration of transmission network and user services. Up in the north near Svalbard are the original telegraph and analogue telephony networks. Somewhere around Alaska is the modern digital telephony network. These networks have very strong technical vertical integration.



The Internet is the Antarctic [~] and it took a long time to get there and explore it. Its success is mostly driven by the end-to-end principle and [base "]Stupid Network[per thou] concepts. (It[base ']s not at the South Pole, however [~] there are too many private IP addresses, strange cache controls, content delivery networks and intranet proxies. It[base ']s somewhere out along the Antarctic Peninsula, maybe.)



So latitude to us is about how the functions of an application are embedded in the core network vs. the edges of the network. This is all well known and good.



Now for the crux [~] time to pay attention.



Longitude was a nightmare to measure, and took the invention of accurate mechanical clocks that worked under hostile oceanic conditions. If telecom[base ']s latitude is about the functional aspects of the network, longitude is all the non-functional bits of the puzzle. The limits of the end-to-end principle and [base "]Stupid Network[per thou] are that they say nothing about payment, law, user identity, property rights, copyright, etc. That[base ']s OK: they[base ']re not about those things. It[base ']s not a criticism or omission. It[base ']s an orthogonal axis.



If there is an irresistible oceanic current and violent wind driving you southwards towards the technically de-coupled Internet, then your opportunity lies in sailing east and west along the journey taking advantage of all the quirks of those non-functional aspects of the system. Heading north will just exhaust your resources in a futile gesture against the storm.



A pause in our journey



So Galileo[base ']s insight was that we lived in a 3D world with the sun (apparently) at the centre. Ours is that we live in a 2D telecosm, and not a linear world with [base "]dumb pipe[per thou] at the left extreme and [base "]smart network[per thou] to the right as most analyst slides would have it. We[base ']re saying that the industry has latitude and longitude mixed up because the promised land is at 90 degees to the route currently being proposed: not fighting the prevailing wind towards decoupling of the network and services, but tacking around those forces to achieve alternate goals.



We believe that telcos have an identity crisis that is easily resolved. Their job is not network operators, per se. They are distributors of value, and they specialise in the distribution of information (as opposed to physical) goods. That distribution can be on physical media, near-field radios, mobile or fixed networks, as well as wide-area broadcast networks.



The Telco 2.0 Business Model Map places a dozen different sources of value of how operators engage in distribution activities. Each one differs from the others in the technical or functional integration (latitude) as well as non-functional integration (longitude).



In our next article we[base ']ll give some more concrete examples, show you the map itself, and talk a little about what change of course is needed.

[Telco 2.0]
4:36:46 PM    comment   



The Telco 2.0 'Business Model Map': Part One, Introduction.

If you[base ']re heading to a new world, navigation is everything. The Vikings made it across the Atlantic without really knowing where they were going or where they[base ']d got to. Columbus got his units mixed up, didn[base ']t know he hadn[base ']t got there at first, but claimed the credit anyway. Amerigo Vespucci did make it, and got immortalised in the process (thankfully avoiding precipitating the United States of Vespuccia in the process).



The Telco 2.0 Business Model Map is our best effort at distilling half a decade of exclusively studying the tectonic forces colliding telecoms, media and technology industries, and ripping apart connectivity from application services.



Why is it important?



If you a telco exec or supplier, and are worried about structural change and Internet encroachment, you need to understand this map: the shape of the world, where the land is, and which way is up.



Where am I?
Where do I want to go?
Which way do I need to go to get there?



We[base ']re presenting this here because it seems to crop up in most consulting proposals we[base ']re writing for top industry names. One picture seems to crystallise the situation in a way that a thousand Powerpoint bullets never will.



It ties together several of the most important themes about industry change:

  • The telecoms industry is indeed in fundamental structural change [~] 90% in our survey of over 560 insiders agreed that [base "]The Telco industry is undergoing fundamental structural change - the move to a New World Order[per thou] (excuse the unintentional pun).
  • The [base "]de-layering[per thou] that T-Mobile referred to at 3GSM is the driving force.
  • This is confirmed by our survey results as well: around 80% agreed that [base "]The critical driver of change in the industry is the separation of network connectivity from devices, services and content.[per thou]
  • You have to choose which layers to play in.
  • And you have to know where to position yourself in those layers, i.e. what business model to adopt[sigma]
  • [sigma]and around 75% agreed that [base "][The new] world will require operators to compete in radically new ways with new business models. Those companies that do not embrace these will fail.[per thou]




Our telegeography course: four lessons



There are a couple of stages to being able to understand our map:



  • What the problem is with the current maps and worldview.
  • Why we[base ']ve re-drawn the world with [base "]up[per thou] in a different direction.
  • Where the land ([base "]value[per thou]) and sea ([base "]void[per thou]) is.
  • How to interpret the map to navigate your business.




Our Business Model Map is the most important article you[base ']ll probably read on this blog, so if you[base ']re short of time press [base "]print[per thou] and read this preview and the follow-ups quietly when you[base ']ve time to digest and reflect.



In this introduction article we[base ']ll bite off the first two bullets. In the main article we[base ']ll present the map itself (patience, dear reader) and talk more about its importance and implications.



Caveat explorator



As far as we[base ']re aware, this is the first such map. There are travellers[base '] tales about each of the distant lands, new islands of value arising from an ocean of opportunity, as well as cataclysmic waves of destruction. Being first, it[base ']s not a perfect map: more explorers and cartographers will be needed to complete the detail.




Public domain image courtesy of the University of Texas Libraries,
The University of Texas at Austin.



From heresy and apostacy to renaissance and enlightenment



Just as Gallileo nearly got a roasting at the stake for saying the world was round, telecom has brewed its own heretical worldviews. It[base ']s not that orthodoxy is necessarily wrong, just incomplete for further journeys from the known. A 2D worldview works for short voyages; Newtonian physics works for engineers if not physicists. In our industry, the [base "]layered model[per thou] of telecom networks as most famously espoused by the [base "]OSI 7-layer model[per thou] is a useful reference point for network engineers.



There are two heretical ideas bound up together that every reader should be aware of. If you[base ']re not, you[base ']re illiterate about telecom strategy.



The first was the end-to-end principle, which is a design principle for networks. It says that embedding even elementary service functionality (e.g. assured delivery, QoS, security) into networks generally adds little or no value. (Don[base ']t rush to cancel that IMS NGN order quite yet though[sigma])



The second was the Rise of the Stupid Network, which is a value statement that not only is it technically better to make the network dumb, but keeping the telco out of the services space is good. This is because (paraphrasing) it maximises the option value of the network to accommodate unforeseen innovation and user needs [~] and stops the interests and assumptions of telcos getting in the way of meeting them.



Together these ideas explain most of why the Internet world is encroaching on and eroding the value of the telecoms world. You probably tell the telecoms horror story to your kids at night when they want something scarier than the usual fairy tale gore.



The critical part of our map is understanding the limits of these ideas. That[base ']s where the new beachfront property will be built.



Latitude and longitude



Latitude is the easy one to measure. Just look up at the sun at midday and see where the shadow lands. (You can tell why the great explorers didn[base ']t come from a drizzly and backwards Middle Ages Britain.) The conceptual equivalent of latitude in telecoms is vertical integration of transmission network and user services. Up in the north near Svalbard are the original telegraph and analogue telephony networks. Somewhere around Alaska is the modern digital telephony network. These networks have very strong technical vertical integration.



The Internet is the Antarctic [~] and it took a long time to get there and explore it. Its success is mostly driven by the end-to-end principle and [base "]Stupid Network[per thou] concepts. (It[base ']s not at the South Pole, however [~] there are too many private IP addresses, strange cache controls, content delivery networks and intranet proxies. It[base ']s somewhere out along the Antarctic Peninsula, maybe.)



So latitude to us is about how the functions of an application are embedded in the core network vs. the edges of the network. This is all well known and good.



Now for the crux [~] time to pay attention.



Longitude was a nightmare to measure, and took the invention of accurate mechanical clocks that worked under hostile oceanic conditions. If telecom[base ']s latitude is about the functional aspects of the network, longitude is all the non-functional bits of the puzzle. The limits of the end-to-end principle and [base "]Stupid Network[per thou] are that they say nothing about payment, law, user identity, property rights, copyright, etc. That[base ']s OK: they[base ']re not about those things. It[base ']s not a criticism or omission. It[base ']s an orthogonal axis.



If there is an irresistible oceanic current and violent wind driving you southwards towards the technically de-coupled Internet, then your opportunity lies in sailing east and west along the journey taking advantage of all the quirks of those non-functional aspects of the system. Heading north will just exhaust your resources in a futile gesture against the storm.



A pause in our journey



So Galileo[base ']s insight was that we lived in a 3D world with the sun (apparently) at the centre. Ours is that we live in a 2D telecosm, and not a linear world with [base "]dumb pipe[per thou] at the left extreme and [base "]smart network[per thou] to the right as most analyst slides would have it. We[base ']re saying that the industry has latitude and longitude mixed up because the promised land is at 90 degees to the route currently being proposed: not fighting the prevailing wind towards decoupling of the network and services, but tacking around those forces to achieve alternate goals.



We believe that telcos have an identity crisis that is easily resolved. Their job is not network operators, per se. They are distributors of value, and they specialise in the distribution of information (as opposed to physical) goods. That distribution can be on physical media, near-field radios, mobile or fixed networks, as well as wide-area broadcast networks.



The Telco 2.0 Business Model Map places a dozen different sources of value of how operators engage in distribution activities. Each one differs from the others in the technical or functional integration (latitude) as well as non-functional integration (longitude).



In our next article we[base ']ll give some more concrete examples, show you the map itself, and talk a little about what change of course is needed.

[Telco 2.0]
2:29:15 PM    comment   



The Telco 2.0 'Business Model Map': Part One, Introduction.

If you[base ']re heading to a new world, navigation is everything. The Vikings made it across the Atlantic without really knowing where they were going or where they[base ']d got to. Columbus got his units mixed up, didn[base ']t know he hadn[base ']t got there at first, but claimed the credit anyway. Amerigo Vespucci did make it, and got immortalised in the process (thankfully avoiding precipitating the United States of Vespuccia in the process).



The Telco 2.0 Business Model Map is our best effort at distilling half a decade of exclusively studying the tectonic forces colliding telecoms, media and technology industries, and ripping apart connectivity from application services.



Why is it important?



If you a telco exec or supplier, and are worried about structural change and Internet encroachment, you need to understand this map: the shape of the world, where the land is, and which way is up.



Where am I?
Where do I want to go?
Which way do I need to go to get there?



We[base ']re presenting this here because it seems to crop up in most consulting proposals we[base ']re writing for top industry names. One picture seems to crystallise the situation in a way that a thousand Powerpoint bullets never will.



It ties together several of the most important themes about industry change:

  • The telecoms industry is indeed in fundamental structural change [~] 90% in our survey of over 560 insiders agreed that [base "]The Telco industry is undergoing fundamental structural change - the move to a New World Order[per thou] (excuse the unintentional pun).
  • The [base "]de-layering[per thou] that T-Mobile referred to at 3GSM is the driving force.
  • This is confirmed by our survey results as well: around 80% agreed that [base "]The critical driver of change in the industry is the separation of network connectivity from devices, services and content.[per thou]
  • You have to choose which layers to play in.
  • And you have to know where to position yourself in those layers, i.e. what business model to adopt[sigma]
  • [sigma]and around 75% agreed that [base "][The new] world will require operators to compete in radically new ways with new business models. Those companies that do not embrace these will fail.[per thou]




Our telegeography course: four lessons



There are a couple of stages to being able to understand our map:



  • What the problem is with the current maps and worldview.
  • Why we[base ']ve re-drawn the world with [base "]up[per thou] in a different direction.
  • Where the land ([base "]value[per thou]) and sea ([base "]void[per thou]) is.
  • How to interpret the map to navigate your business.




Our Business Model Map is the most important article you[base ']ll probably read on this blog, so if you[base ']re short of time press [base "]print[per thou] and read this preview and the follow-ups quietly when you[base ']ve time to digest and reflect.



In this introduction article we[base ']ll bite off the first two bullets. In the main article we[base ']ll present the map itself (patience, dear reader) and talk more about its importance and implications.



Caveat explorator



As far as we[base ']re aware, this is the first such map. There are travellers[base '] tales about each of the distant lands, new islands of value arising from an ocean of opportunity, as well as cataclysmic waves of destruction. Being first, it[base ']s not a perfect map: more explorers and cartographers will be needed to complete the detail.




Public domain image courtesy of the University of Texas Libraries,
The University of Texas at Austin.



From heresy and apostacy to renaissance and enlightenment



Just as Gallileo nearly got a roasting at the stake for saying the world was round, telecom has brewed its own heretical worldviews. It[base ']s not that orthodoxy is necessarily wrong, just incomplete for further journeys from the known. A 2D worldview works for short voyages; Newtonian physics works for engineers if not physicists. In our industry, the [base "]layered model[per thou] of telecom networks as most famously espoused by the [base "]OSI 7-layer model[per thou] is a useful reference point for network engineers.



There are two heretical ideas bound up together that every reader should be aware of. If you[base ']re not, you[base ']re illiterate about telecom strategy.



The first was the end-to-end principle, which is a design principle for networks. It says that embedding even elementary service functionality (e.g. assured delivery, QoS, security) into networks generally adds little or no value. (Don[base ']t rush to cancel that IMS NGN order quite yet though[sigma])



The second was the Rise of the Stupid Network, which is a value statement that not only is it technically better to make the network dumb, but keeping the telco out of the services space is good. This is because (paraphrasing) it maximises the option value of the network to accommodate unforeseen innovation and user needs [~] and stops the interests and assumptions of telcos getting in the way of meeting them.



Together these ideas explain most of why the Internet world is encroaching on and eroding the value of the telecoms world. You probably tell the telecoms horror story to your kids at night when they want something scarier than the usual fairy tale gore.



The critical part of our map is understanding the limits of these ideas. That[base ']s where the new beachfront property will be built.



Latitude and longitude



Latitude is the easy one to measure. Just look up at the sun at midday and see where the shadow lands. (You can tell why the great explorers didn[base ']t come from a drizzly and backwards Middle Ages Britain.) The conceptual equivalent of latitude in telecoms is vertical integration of transmission network and user services. Up in the north near Svalbard are the original telegraph and analogue telephony networks. Somewhere around Alaska is the modern digital telephony network. These networks have very strong technical vertical integration.



The Internet is the Antarctic [~] and it took a long time to get there and explore it. Its success is mostly driven by the end-to-end principle and [base "]Stupid Network[per thou] concepts. (It[base ']s not at the South Pole, however [~] there are too many private IP addresses, strange cache controls, content delivery networks and intranet proxies. It[base ']s somewhere out along the Antarctic Peninsula, maybe.)



So latitude to us is about how the functions of an application are embedded in the core network vs. the edges of the network. This is all well known and good.



Now for the crux [~] time to pay attention.



Longitude was a nightmare to measure, and took the invention of accurate mechanical clocks that worked under hostile oceanic conditions. If telecom[base ']s latitude is about the functional aspects of the network, longitude is all the non-functional bits of the puzzle. The limits of the end-to-end principle and [base "]Stupid Network[per thou] are that they say nothing about payment, law, user identity, property rights, copyright, etc. That[base ']s OK: they[base ']re not about those things. It[base ']s not a criticism or omission. It[base ']s an orthogonal axis.



If there is an irresistible oceanic current and violent wind driving you southwards towards the technically de-coupled Internet, then your opportunity lies in sailing east and west along the journey taking advantage of all the quirks of those non-functional aspects of the system. Heading north will just exhaust your resources in a futile gesture against the storm.



A pause in our journey



So Galileo[base ']s insight was that we lived in a 3D world with the sun (apparently) at the centre. Ours is that we live in a 2D telecosm, and not a linear world with [base "]dumb pipe[per thou] at the left extreme and [base "]smart network[per thou] to the right as most analyst slides would have it. We[base ']re saying that the industry has latitude and longitude mixed up because the promised land is at 90 degees to the route currently being proposed: not fighting the prevailing wind towards decoupling of the network and services, but tacking around those forces to achieve alternate goals.



We believe that telcos have an identity crisis that is easily resolved. Their job is not network operators, per se. They are distributors of value, and they specialise in the distribution of information (as opposed to physical) goods. That distribution can be on physical media, near-field radios, mobile or fixed networks, as well as wide-area broadcast networks.



The Telco 2.0 Business Model Map places a dozen different sources of value of how operators engage in distribution activities. Each one differs from the others in the technical or functional integration (latitude) as well as non-functional integration (longitude).



In our next article we[base ']ll give some more concrete examples, show you the map itself, and talk a little about what change of course is needed.

[Telco 2.0]
1:15:25 PM    comment   



The Telco 2.0 'Business Model Map': Part Two, Bits and Money.

It[base ']s a bit cruel, we know, but we[base ']re not going to show you the full Business Model Map quite yet, despite the promise last time. We first need to get clear about what we mean by the two axes of the map that borrow from the latitude and longitude metaphor.




The axes of the Business Model Map



We want to describe some new archipelagos and islands that telcos need to explore. Our thesis is that operators need to:



  • slice and dice the broadband connectivity offering in different ways, then
  • package it in different ways together with devices, software, services and
  • distribute it in different ways via the standard channels and sales methods.




Thus they assemble a portfolio of business models for paying off the network.



We[base ']ll go into more detail once we[base ']ve done the map (next article in the series, I promise).



Don[base ']t just take it from us



Network providers want value-based pricing for traffic and knowledge of what[base ']s flowing over the network; users want a free ride and to hide what they[base ']re up to. We[base ']re far from being the only ones seeing this tension between the technical and economic design decisions in building networks. For instance, Andrew Orlowski in The Register knowingly winds up the end-to-end principle founders in this diatribe:

This neatly and accurately describes the guiding principles of the first packet network pioneers, who sought to create a decentralized and [base "]dumb[per thou] network.



The [base "]principle[per thou] was already redundant by the time the paper enunciating it was first published in 1984, however, and so it[base ']s fair to say that none of today[base ']s packet networks are [base "]end to end[per thou] or [base "]dumb[per thou].



If they were, they wouldn[base ']t work, and you wouldn[base ']t be reading this now.



But [base "]End to End[per thou] has taken on a quasi-religious significance over twenty years. It[base ']s not just a buzzword, it[base ']s a way of life!



Tomi Ahonen eulogises over closed mobile services as the emerging 7th mass medium:



[sigma]the mobile is the first mass medium with a built-in payment mechanism [our emphasis]. This is a massive iceberg totally not understood by most even within the industry. Never before was there [base "]click-to-buy[per thou] ability in any media. [sigma] What combines not only the convenience of the credit card [~] twice as many people have mobile phones than have credit cards, and kids as young as 7 years old have mobile phones while credit cards tend to have an 18 year age limit [~] but also the convenience of the credit card reading device?



We don[base ']t necessarily endorse these views [~] indeed, in places we[base ']d violently disagree [~] but they[base ']re illustrative of what the top journalists and consultants think. Indeed, they were anticipated and documented by those who first articulated the end-to-end principle, and who described how users would always want to evade the pricing mechanisms:



This discussion illustrates the observation that there may be no such thing as value-neutral design. The design and deployment of tunnels (or other mechanisms to mask what services are being used by a consumer) shifts the balance of power from the producer to the consumer. Given that value pricing is not a moral wrong, should the consumers be aided in their quest to bypass the controls of the producers? Those who see the consumer as [base "]the little guy[per thou] being abused by the [base "]big providers[per thou] will design such mechanisms, and this is part of the tussle [of network design], not something that happens outside the tussle.



Our job is to put this into context and offer some constructive ways forwards.



Functional integration of Technology first



Getting the valuable bits delivered to the right places at the right times in vaguely the right order has always been a challenge. Every time the underlying transmission technology improves, we think of new ways of soaking up the capacity and creating a new capacity crisis at the cutting edge. Just when you thought HDTV was the worst-case capacity need, your local electronics store is trying to sell you whole-wall immersive displays.



Because of the difficulty of making any form of communications work in the analogue era, every part of the transmission and reception had to be built to a single purpose. For example, broadcast FM radio is a tightly integrated service:





A dedicated transmission infrastructure sends signals encoded specially for reception in single-purpose listening devices. At the other extreme might be how we read Web pages such as this one.





Whilst all the parts have to work together, they interface using multi-purpose components with standardised interfaces. Your PC can run many applications, your web browser can render many media types, and the whole system doesn[base ']t need to progress in lock-step: there[base ']s flexibility for different parts to advance at different rates.



Now, nothing is absolute. You can create a radio that does unexpected things (such as taping shows) demonstrating [OE]loose coupling[base '], or you can endure unexpected integration of content and hardware on your PC when some DRM scheme kicks in. The above models are simplified: there can, of course, be different transmission and reception media and devices; more layers of UI, operating system, and content packaging; and different forms of integration. Our map is a manual survey of the shape of the world, not a high-resolution satellite radar scan.



For another example of technical integration, take a look at the recent and interesting paper by George Salisbury, a consultant to Detecon (a Deutsche Telecom company). He has analysed over 220 different communications services to see the trends in technical vertical integration. How many services in future are likely to be dependent on QoS promised from the network? Unsurprisingly he saw a strong move towards more modular, open and loosely connected value systems. It[base ']s worth checking out some of the thoughts on tiering at the end, as we[base ']ll be re-visiting those.



Making the money follow the bits



For our other axis we[base ']ve picked by far the most important non-functional aspect of any communications system - the money. How does the money for the service follow the cost of sending the bits?





Let[base ']s take a physical-world example first. The free postage offer from Amazon shows a high commercial coupling of the transmission (delivery) with the service (product). I pay for both in one transaction, and never even know how my money is really allocated between them. The [base "]FREE[per thou] is an illusion we are happy to live with. Yet there is no technical integration of the delivery and product. UPS doesn[base ']t need to start up a special delivery service for this product line, nor for [base "]free postage and packing[per thou] items.



Back to telecoms. Take for example a short mobile phone call:





The user is charged 5¢, and this is automatically channeled into a handset subsidy payment, the [base "]postage and packing[per thou] costs of physically delivering the message, together with a termination fee to the recipient network. Some is retained as profit. This is what has Tomi Ahonen so excited above, and what I personally was trying to do for mobile web pages back at Sprint five years ago.



There can be many patterns of how money flows between the sender, medium, delivery agent and recipient. Telephony sees many of them: freephone calls, international toll calls, premium rate calls, reverse charge calls, and so on. Yet we don[base ']t see the equivalent of the freephone call for mobile data [~] yet. Which is precisely where we want to take you!



Note that the user doesn[base ']t need to separately provision any kind of payment in a tightly commercially integrated system. However, they certainly can if they wish to and bypass the operator. For example, I[base ']ve been using Vyke to bypass expensive roaming costs and send SMS messages over GPRS for pennies using my Vyke pre-paid balance. What operator[base ']s can[base ']t do today is strike a middle ground, and offer me a high-quality, low-latency virtual pipe over which to run mobile Skype [~] whilst (and this is the key bit) letting my email and daily remote backup operate separately at lower cost.



The converse case from high integration might again be a PC, where you separately pay for the hardware, software and connectivity with no cross-subsidy. This is an example of low commercial integration of the parts. Companies like Dell foist endless pre-installed goodies onto their PCs in the hope of up-selling you some more software. This is an example of media-based distribution [~] one of the patterns for moving bits [~] coupled with a particular commercial model (free trial).



Our map aims to show all the main combinations of the technical transport medium and commercial model and how they change over time.



The best of both worlds



What we really want is to keep the network relatively dumb because that makes it flexible. We want just enough network smarts to help us keep out nasties of spam, fraud and mischief. At the same time we want to keep the goodness of some kind of integrated payment and value-based pricing. These are what gives us the rational economic model that has served the mobile world so well to date. And in our next article, we[base ']ll finally get to see the land at the far side of the ocean.

[Telco 2.0]
1:12:06 PM    comment   



The Telco 2.0 'Business Model Map': Part Three, Ten years of turmoil.

This is the third in our series of articles depicting how the business model of the telecoms industry is fragmenting. The first article explained the need for the map, and the second article introduces the key concepts that label the axes. Now we[base ']re ready to bring on the map. In the final article we[base ']ll delve into some more detail as to what is means and how the business model of operators needs to evolve.



Just as a reminder, we[base ']ve discussed:



  • The communications industry is part of a distribution system for bits [~] ones and zeros.
  • Those bits have value to the users, and sometimes (but not always) there is payment for those bits.
  • There are many [base "]bit delivery systems[per thou] (e.g. broadcast, Internet, SMS) with varying degrees of vertical integration. The weaker the integration, and the more modular the technology, the more vendors there are and the more control the user has.
  • There are also many degrees of commercial integration between the services and the content delivery, with payment varying from fully integrated and automatic (e.g. SMS) to completely separate (e.g. fixed-line Web).
  • Strong technical forces are separating bit delivery from the services those bits represent.
  • The under-explored territory is where that separation occurs technically, but the commercial side remains integrated.




2007 is a simple world you[base ']ll look back on nostalgically



Today we live in a telecosm divided between two major sources of revenue for network operators:



  • Full vertical integration of technology and payment for the [base "]traditional[per thou] carrier services of telephony and SMS messaging.
  • Broadband Internet access.






It[base ']s a bi-modal industry located at two extreme corners of our map. Yes, there are some other profit centres (we[base ']ll come to them) [~] but they[base ']re pretty tiny in comparison.

Watching telecom fragment into a dozen little pieces



So it[base ']s time to start rolling our clock forwards and seeing what course the industry takes. What we see are many business models for delivering those valuable bits vying for attention. We[base ']ll deliberately omit the legend, because it[base ']s the big picture that matters, not the detail. Still, the two big ones today are those shown above: telephony/SMS and broadband.





(We blogged an embryonic version of this last summer.)



So it[base ']s time to introduce some growth areas for five years out.





At first glance, no surprises. We see the traditional voice and messaging business as being roughly stable, with new growth diverted into quality-of-services enhanced systems such as IMS. (BT are turning on their 21st Century Network right now, so pretty much the entirety of the UK fixed telephony base will have shifted bubbles in five years from now.) IPTV is a growth area, as is broadcasting as mobile TV proves to be a reasonable hit. Broadband [~] fixed and wireless [~] continues to accelerate.



But there are plenty of other growth areas off that list. What can the rest of the spots on the diagram represent?



A journey of a thousand miles begins with a single step



If you know where the currents are taking you, it gets a bit easier to know how to set your sail, where to point the rudder, and which way to row. So here[base ']s our best guess of what the telecommunications industry looks like in ten years, in terms of business model mix.





Now it[base ']s time to describe all the rest of the points on our map.



  • In the bottom left are free (or subsidised) community or municipal networks. For good or evil, we think that governments will see high social benefit in ubiquitous adoption, and new business models are likely to emerge to support this. Communities themselves will also work together to provide the next generation of access. (The current generation being the widespread [base "]linksys[per thou] and [base "]NETGEAR[per thou] open wi-fi access points bringing you this very article right now.)
  • The bottom-up connectivity model is epitomised by companies like FON. As femtocells and other technologies mature, carriers will embrace hybrid models of network build-out.
  • There is a small exception case for services like i-mode or ISP email that use connectivity charges to cross-subsidise services. This is a commercial dead-end but lives on another decade.
  • In the middle of the diagram are personal-area networks (PANs) and other unrouted connectivity. Existing examples might include Bluetooth, Zigbee, or even short-range Family Radio Service radios. We agree with Motorola on this one: there[base ']s likely to be an explosion of value in this space, and operators are so attached to big centralised networks that they[base ']re likely to miss the boat. A whole new raft of players enter based on payments, games, next-gen walkie-talkies, presence sensing, and social media sharing. One to watch.
  • The growth in capacity of storage media greatly outstrips that of CPUs, batteries or dynamic memory. Within a decade, you[base ']ll be able to buy a music phone with every song every recorded. Soon after, every movie will be thrown in too. Today operators sell devices where the memory is empty. It[base ']s like Coke selling aluminium cans with a pack of sugar syrup and instructions to [base "]just add water[per thou].
  • In reaction to the [base "]one-size-fits-all[per thou] nature of IPTV, peer-to-peer content delivery grows [~] and the networks evolve to support rather than throttle this behaviour. The content delivery networks (CDNs) incorporate P2P functionality, and everyone is happy.
  • Two big growth stories will dominate: one is already on the radar, of ad-funded services and connectivity; the other is service-funded connectivity where the user pays the price they see [~] no hidden postage or package charges, no bill shock, no metered usage anxiety.
  • An increasing number of devices will come with connectivity embedded as part of the deal, and no recurring charges (at least initially). This is the reverse of the cellular model, where the hardware is subsidised by the service fee. In practise many of these devices will be part of bigger home or automotive services where the cost of billing isn[base ']t worth the hassle when the connectivity only forms a small part of the overall solution cost.
  • Finally, the shark[base ']s fin in the water. Various forms of tiered connectivity are going to emerge at an alternative to full-blown carrier-controlled QoS. Rather than recap everything here, go read our article on Paris Metro Pricing for some insight into the area.




Understanding the limits of the map



You know how Greenland often looks about the size of South America?





In fact, it[base ']s about 12% of the area. Well, we[base ']ve got to confess to some cartographic sins and limitations too:



  • We[base ']ve drawn each of the [base "]business models[per thou] as a circle, but in fact within each there are often several differently-positioned sub-models. For example within media-based content, a pre-recorded DVD more tightly couples payment and delivery, as well as medium and content, than a re-recordable DVD. You can[base ']t use the size of the blob to represent importance at the same time as making it bigger to encompass the whole space that business model occupies. (With a bit of graphic design skill maybe we[base ']ll do a future 3D version that fixes this.)
  • There are many sub-models within each business model [~] just look at the difference between the 800/freephone number market from that of the premium-rate call market. We can[base ']t show all the detail on a world map.
  • There may even be shifts in position, for instance as payment APIs are introduced as part of near-field communications services.
  • We[base ']ve lumped everything into one map, fixed and mobile. We think mobile triumphalism is exaggerated [~] the model will be unpicked, and fixed operators will learn their billing and packaging tricks. At the risk of using the [OE]c[base '] word, they[base ']ll converge.




In our next (and final) article we[base ']ll go into some more detail about the important things to look for in the map, and give you a quick guided tour of the world.

[Telco 2.0]
12:00:23 PM    comment   



FCC boosts Telco TV signals.

Kevin Martin[base ']s FCC is giving telco television a boost by passing new rules that are designed to speed up the local video franchising process. In other words, yet another sop to the telecoms, something Martin has been doing for pretty much his entire tenure. The rules say that the local governments have 90 days to make up their mind!¬[sgl dagger] The rules were passed by a 3-2 vote, with FCC commissioners voting along the party lines.

Martin points out that since cable rates are going up, the competition would be good for the consumers and telcos[base '] are spending billions on these new networks. Something tells me, competition is not the primary reason . Telecoms are expanding to video because they are losing their grip over the core business: voice.

No surprise, the telcos like it. Walter B. McCormick Jr., President and CEO of USTelecom, a lobbying/trade group was quick to issue a statement.

The Commission[base ']Äôs order is a critical step forward in bringing consumers greater choices, exciting new services and vibrant video competition. Across the country, large and small telecom service providers are spending billions of dollars investing in new infrastructure to deliver high-speed Internet and innovative video services to their communities.

Michael Copps, the Democratic commissioner isn[base ']t buying it.

agreeing on the many benefits of video competition is hardly the same thing as coming up with rules that will actually encourage honest-to-goodness competition within the framework of the statutes that Congress has given us. The item before us today doesn[base ']Äôt get us there and I cannot support it as written.

Martin, by trying to supersede the local government is skating on thin ice. The political pressure from the local government extends right to Washington DC, and it won[base ']t surprise me at all that this is going to have some Beltway types asking for Martin[base ']s head.

The complete documents are available on the FCC website.

[GigaOM]
11:53:03 AM    comment   
 Wednesday, January 17, 2007



How Yahoo Blew It. Selling ads against search -- it seemed like such a simple thing. But while CEO Terry Semel fumbled and bumbled, Google pulled ahead. By Fred Vogelstein from Wired magazine. [Wired News: Top Stories]
2:40:11 PM    comment   



Samsung, Seamless Internet, OQO, and Black Diamond demo tiny PCs OR Tiny. Video: Samsung, Seamless Internet, OQO, and Black Diamond demo tiny PCs OR Tiny Video: Samsung, Seamless Internet, OQO, and Black Diamond demo tiny PCs OR Tiny. At CES 2007 in Las Vegas, ZDNet Executive Editor David Berlind rounds up the ultra mobile PC (UMPC) category. The miniature PCs are a popular theme at the show because they offer most of the power of a regular notebook or desktop in a very mall device.
[CNET News.com]
2:27:59 PM    comment   



Satellite Static. XM and Sirius are being pressured to merge because of financial troubles and are discovering what others in the sector already know: It's a tough business.

[BusinessWeek Online -- Most Popular Stories]
2:25:01 PM    comment   



iPhone Roundup: True Cost, 3D, and Ringtones!.

For the sake of not bombarding you with 25 iPhone stories today (too late?), here's a summary of all the goodness we've found in the last 48 hours.

First off, someone took all the images on the Apple site and modelled it up into a 3D gif. Neat, eh?

But how much will you really pay for the iPhone in the first year? Counting the $640 for the phone ($599 + tax), a $60 voice plan, a $40 data plan, and $8 worth of fees, you're looking at $1,936 in just the first year. Yikes. Then again, you're paying around that much if you get a regular smartphone with the same data plans, but this may be a shock to the "average" consumer who isn't used to getting data.

Think you're going to be getting the entire 4GB or 8GB on your iPhone for music and videos? Think again. Apple's going to be using 500MB of that to store the OS (slimmed down version of OSX), so you're only going to be getting 3.5GB or 7.5GB. Even less if you're considering the apps that are installed there—if the apps aren't considered part of the OS.

Also, more importantly, users won't be able to use iTunes songs as ringtones. At least, not at launch. We're sure Apple's gotta work out stuff with Cingular and the music industry, since using songs you already bought as ringtones makes it pretty hard to justify buying the same song again just to use as a ringtone—something that's turning out to be a pretty big money source for both providers and the music industry.

And has Cisco lost the rights to the iPhone? According to a trademark law expert, Cisco had to file a Declaration of Use for the trademark before the sixth anniversary of the registration date. Since they registered on 11/16/99, the sixth anniversary would have been 11/16/05. Since they didn't do so, they may in fact have lost their right for exclusive use of the iPhone trademark.

True cost of the iPhone - CenterNetworks does the math! [CenterNetworks]

iPhone 3d [iPhone-3d]

Macwelt gets more iPhone details out of Apple [Ars Technica]

Cisco lost rights to iPhone trademark last year, experts say [ZDNet]

[Gizmodo]
2:22:31 PM    comment   



Japan Watch: Media Skin Cellphone.

mediaskin.pngRemember that hot Media Skin cellphone we saw nearly two years ago from Tokujin Yoshioka design? It's about to be released on KDDI and not NTT DoCoMo, which to most Americans means absolutely nothing.

The Media Skin, however, comes in black, orange, and white, has a QVGA screen, and some various other features we can't quite make out because we don't read Japanese. Point is, design projects actually do make it out sometimes—at least in Japan.

More shots after the jump.

mediaskin2.png

mediaskin3.png

mediaskin4.png

Design Page [KDDI via MetroSexualDesires - Thanks Bob!]

[Gizmodo]
2:19:32 PM    comment   



Sharp W51SH Cellphone: 3-Inch Screen for TV Viewing.

sharpw51sh.jpgSharp's W51SH cellphone is set to make its debut in Japan in the next few days. Sure, it looks exactly like the LG VX9400 we saw at CES, but Sharp's baby has a 3-inch Aquos screen. As we all know, Aquos just isn't a hollow marketing term designed to trick consumers into thinking they're buying Grade A merchandise. No, sir: Aquos means you're getting enhanced picture quality and an ambient lighting sensor. Other gems include on-the-go TV, built-in GPS, HSDPA and a microSD slot. I don't know, but it seems a little "meh" compared to certain other recently announces cellphones.

Press Release (in Japanese) [Sharp via Newlaunches.com]

[Gizmodo]
2:17:22 PM    comment   



Steven Colbert Explains the Cingular, AT&T Deal.


Still confused about what the hell is going on with the Cingular and AT&T deal? Here, allow Steven Colbert to explain it a little bit better. He is getting pretty good at regurgitating the flaccid tech news.

[Gizmodo]
2:13:48 PM    comment   



Apple Opening FairPlay DRM?.

Apple%20DRM.jpg Breaking news for you guys. The folks at Tech.co.uk are reporting that Apple will open its FairPlay DRM to companies that are a part of the "Made for iPod" club. If true, this means that you'll be able to play songs you bought on iTunes on certain third party devices like wireless hi-fi systems. The announcement is rumored to be made official by Apple some time this week. A bold move by Apple, but one that could help keep their allies close by and away from temptation.

Apple to Open Up FairPlay DRM [iLounge]

[Gizmodo]
1:59:28 PM    comment   



Virgin Mobile Fails To Turn U.K. Users On To Mobile TV; Fewer Than 10,000 Customers.

Despite an aggressive GBP2.5 (US$4.9) million ad campaign featuring former Baywatch star Pamela Anderson, NTL’s Virgin Mobile—the first to market in the U.K. with a broadcast TV service to mobile phones—has failed to gain much traction, according to The Guardian. The paper quotes industry insiders as saying Virgin Mobile has signed up “significantly” fewer than 10,000 customers for its Virgin Mobile TV (VMTV) service.  Virgin Mobile CEO Alan Gow didn’t give a figure but says mobile TV is in its infancy and that the availability of just one handset has so far hampered sales despite lowering handset prices and offering free TV or 90-day trials depending on payment method. Rivals contend the TV menu, five channels broadcast via BT using the digital radio spectrum, is too small. More details at our sister site MoCoNews.net.

[PaidContent]
1:52:52 PM    comment   



The Future of Apple. With the iPhone, Apple TV, and a name change, Jobs & Co. are setting a new course for the outfit once known only for its computers.

[BusinessWeek Online -- Most Popular Stories]
1:19:57 PM    comment   



Bollywood on Your Mobile Screen. Acclaimed Indian filmmaker Sanjay Gupta will produce three short movies for viewing on mobile devices.

[BusinessWeek Online -- Most Popular Stories]
11:36:04 AM    comment   



When New Ideas Are Bad for Innovation. "Idea management" is fine, but it's only the beginning of the process of creating new growth platforms.

[BusinessWeek Online -- Most Popular Stories]
11:28:51 AM    comment   



Apple to license FairPlay DRM?.

Hi-Fi vendors queueing up

Apple may be on the verge of announcing it will licence its FairPlay DRM technology, it has been claimed, with the recently announced Netgear EVA8000 Digital Entertainer HD one of the first non-iPod devices to take advantage of the move.âo[oe]

[The Register]
11:20:56 AM    comment   



Top 5 Consumer Trends for 2007.

Five big trends/themes that are on our radar for 2007, dealing with status, transparency and consumer power, the online revolution, more adventurous consumption, and a shift to participation.

More here >>
By trendwatching.com. [trendwatching.com]
10:31:34 AM    comment