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.

6:07:02 PM    comment   

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.

5:52:47 PM    comment   

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):

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.

5:49:13 PM    comment   

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.

5:33:30 PM    comment   

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:

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).

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:

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.

5:02:14 PM    comment   

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.

4:57:08 PM    comment   

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.

4:36:46 PM    comment   

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.

2:29:15 PM    comment   

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.

1:15:25 PM    comment   

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.

1:12:06 PM    comment   

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.

12:00:23 PM    comment   

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.

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11:53:03 AM    comment