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Archive for April, 2011

Separating the 3G/LTE bit-pipe and voice from data to survive

Large operators are focusing on building the fastest and most reliable networks; increasing call and SMS traffic; offering the best data plans for surfing; offering excellent business communication services; building a machine to machine business; offering impressive IPTV; etc. Management effort has to be divided between all these and other businesses. The quest to get departmental budget is long and hard.

So if you are a telecom CxO and you get three business cases, which one do you choose?
1) LTE business case – heavy investment but strategically key and very good ROI
2) IP PBX vs on-site equipment business case – low initial investment and clear business model
3) Telco PaaS business case – low initial investment but unclear business model

Any business leader would say 1 is best, then 2 and do not invest in 3. However there is something called “The Innovator Dilemma“.  LTE will make it easier for dotcoms to offer IP PBX as well as cannibalize voice and SMS revenues because over-the-top players will be able to offer mobile VoIP and IM. Even if a CxO would invest outside of LTE in disruptive technologies then it is still very likely that the best people will want to work in the LTE project and not in a disruptive technologies project.

Note: An operator that does not invest in LTE will be dead in 2 years so investment in new network technologies is crucial for operators to survive in the short-term. So the solution is not to invest only in disruptive technologies.

So what should operators do?

Create a holding company and three independent sub-companies:

  1. The bit-pipe
  2. The cash-cow manager
  3. The future

The bit-pipe company is focusing on the network and its operations. Cost reductions, stability, network quality and new network technologies, e.g. LTE, are key for this company. This company should be able to work on low margins and even work together with competitors if it makes financial sense, e.g. share network resources or resell capacity to competitors.

The cash-cow manager should also be a company focused on maximizing profits and minimizing costs. The cash-cow manager gets to manage the circuits and deliver voice, SMS and traditional telco services. They have the liberty to provide these services on top of other networks if it makes financial sense.

The future is a company that will have the bulk of the people and some seed capital that will pay salaries for the next 18-24 months. The mission should be clear: “Focus on new revenues coming from data”. There will be no cross-charging between the other two companies. Either you get new revenues or your future is looking very bad. Why would you be so extreme? Look at McKinsey, Telco2Research, etc. they all say the same. Key telco assets will loose their value in the coming 2-3 years as has happened with location. Or operators start to work on new data revenues NOW or they will have to fire tens or hundreds of thousands of employees in 2-3 years. Telefonica already started a process to fire 20% of the workforce. Separating employees into a new company and giving them one mission will make everybody focus on success. Innovative revenue-generating data services is what the telecom industry needs. Without it everybody will start feeling the pain very soon…

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OpenFlow a standard for network virtualization

April 22, 2011 1 comment

Virtualization for networks is going to be the next big thing in disruptive networking. There are already startups raising VC money e.g. BigSwitch just raised $13.75M. Another example is iwNetworks. It was only a matter of time before companies would think about virtualizing network resources. That time has come and there already is a standard in the form of Openflow (some videos). The expected route is that we will first see “normal network equipment” being virtualized for it to be followed by a new generation of virtual services that are really disruptive. Operators should be actively involved in this space because this can become a game changer if all of a sudden policy control and other types of network shaping technologies become accessible to the masses…

Telco PaaS is not Telco Assets and PaaS

April 11, 2011 2 comments

Telecom operators have always focused on two aspects: ARPU and time-to-market. In the latest technology craze – Cloud Computing – a lot of telecom operators are seeing a new golden grail. Those that can see further than SaaS marketplaces and moving their hosting to IaaS are only the happy few. Since Cloud Computing = SaaS + PaaS + IaaS, it is normal that operators start talking about Telco PaaS. However Telco PaaS is a lot more than combining telco assets with an IT PaaS.

IT PaaS are aimed at quickly launching applications. The IT grail is to launch thousands of applications to find the one that everybody likes and become an overnight millionair. Telecom operators might be easily fooled that opening their telecom assets to IT PaaS developers will bring that one application that will turn the telecom sector around: “The Killer App”.

Unfortunately a telecom application is more than an SDK+app server in the Cloud that can do VoIP. The reason why companies pay a plus to telecom operators is “trust”. “Trust” that you can pick up the phone and call somebody. “Trust” that if something is not working that you can call their call center. “Trust” that tomorrow they will offer you the service.

All this “Trust” has to do with the way operators have their backoffice systems and processes set-up. Having thousands of developers creating applications that mix telecom with SaaS might give some nice innovation. However telecom operators are not prepared to handle thousands of end-users that find bugs in a long list of applications and start calling call-centers massively. End-user expectations are different for telecom applications then for IT applications. This definitely has to do with the price they pay for them.

What should a Telco PaaS offer?

More than a fixed feature set, the most important changes for an operator that wants to offer a Telco PaaS might be internal. Operators will need a large shift in thinking to be able to accept some of the new realities:

  1. Telco PaaS services need to be launched in weeks not years.
  2. Telco PaaS services will be buggy, unstable and fail.
  3. Telco PaaS services can not be supported via a call center.
  4. There are no Telco PaaS standards and there are likely not to be any until it is too late.
  5. Telecom can not be greedy

Launching in weeks instead of years

If IT PaaS is bringing something then it is speed of development. Telco PaaS needs the same type of speed. In practice this means that REST and JSON should be the operator’s vocabulary, not SIP and CDRs. Telco Assets need to be exposed to non-telco programmers. Developer communities need to be created. Marketplaces that allow developers to sell their creations by the click of a button and not to worry about complex charging and billing.

Unstability, bugs and failure

Not every IT programmer is a genius. There are probably quite a few geniuses. Instead you need to expect that people will do things incorrectly, by error but also on purpose. Application virtualization and sandboxing are key to make sure “mistakes” don’t bring down the whole platform. On the other hand customers need to be segmented. There are customers that can see further than the bugs and see the potential. These are called visionaries or early adopters. It is critical that operators allow these early adopters to play around with buggy services. However it is equally important that the majority of users know that the sandbox might contain buggy apps and that the call center is not the place they can find help.

No support via the call center

All sandbox applications can not be supported via a call center. Agents will not know anything about these thousands of apps but neither should they. The only one that knows is the one that developed the service. He or she should get the right tools to quickly understand which bugs or feature requests are important, e.g. via a social CRM. The operator should monitor those promising apps that are ready to graduate the sandbox. They should be place in an incubation program. Incubation will see if the applications can go mainstream and will professionalize support, availability and reliability.

No Telco PaaS standards

In the dotcom world the first one that creates a solution, creates the standard. In Telco PaaS this will be the same. If we do not know how users will use a Telco PaaS, how can we expect that standardization bodies will define the correct standards. However in disruptive innovation, unlike technology evolution, first movers have an ever lasting advantage.

Telecom Greediness

If you have a monopoly, you can be greedy. No competitor will offer anybody a better deal. However in Cloud Computing, greediness will kill your best innovation. It is better to get a small percentage, signup or usage fee per application when you have thousands of applications then to get nothing at all. Many cents can make billions. Think Adwords…

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