With software defined radio becoming cheap, the economics of running a network will change. Fon in Spain has been for years allowing WiFi users to share their bandwidth and customers are getting a revenue share if others pay for bandwidth. Why can’t the same be done for non-WiFi communication? Why not have a crowd-sourced mobile network? If you run a mobile base station that takes up your fixed broadband then you get 50% of the revenue generated by the network. This model could be interesting for regular mobile operators as well as disruptive operators. You can easily see how using LTE license spectrum that is currently not being used by the primary owner could be repurposed, taking the white spaces concept to the next level. Cloud-based control systems can manage hundreds of thousands or even millions of micro cells. By federating all the different micro cells you get reasonable coverage. Add an MVNO agreement for black spots and some Twilio or other VoIP magic and you have a complete working network. Stitch into this network personizable value added services, like dynamic call routing [partner and kids get priority, call centers get a busy signal, etc.], customisable voice mail, etc. Even better, an App Store for VAS. Dreamscoms would offer a better experience than others because you would get paid if you participate and services would add real value, not only costs…
GSMA, ETSI, etc. have been defining standards for the telecom world for years. However outside of the telecom industry these standards have found little or no adoption. In a world where telecom operators are fast becoming bit pipes, do we really need telecom standards? Why can’t the telecom industry just use SIP, WebRTC, REST, etc. just like everybody else?
The current systems in telecom are assuming calls and SMS need to be billed for. What would happen if the starting point is: data insights, network apps and connectivity are the only things that are billed? Connectivity is likely going to be unlimited or with very high limits over time. New revenue would have to come from selling data insights, either individually with consent, or aggregated and anonymised. As well as from apps that run inside the network: on CPEs, DSLAMs, mobile base stations, etc. So for the purpose of this blog let’s focus on a world where calls and SMS can no longer be charged for and connectivity is close to unlimited for most normal use cases. To move bits fast through a network, you want the least number of protocol converters. So using many different standards would make things slow and expensive. Additionally telecom operators have overpaid for lots of standards and their software support during years without ever using them. Finally implementing a standard is very costly because often only 20% of the functionality is really used, but the other 80% needs to be there to pass compliance tests.
The nonstandard or empty networking appliance
In a world where software can define networks and any missing functionality is just a networking app away, it would be a lot better to start from an empty networking appliance, i.e. networking hardware without software, and then to buy everything you need. If you need a standard then you might want to buy the minimal/light, equals 20%, implementation and see if you can live with it. Chances are you still have too many functions that are not used. Facebook open sourced its top of the rack networking solution and surprise, surprise, the interface is Thrift based. Thrift is used in all the other Facebook services to have a standard high throughput interface for all its software services. Google probably uses protocol buffers. Apache Avro would be another alternative and the most openly licensed of them all. So instead of focusing on a standard, it would be better to standardise on a highly throughput optimised interface technology instead of public slow standards. Inside a telecom operator this would work very efficient and for those systems that talk to legacy or outside world systems, adding a standard is just a networking app away. This would simplify a telecom network substantially, saving enormous costs and accelerating speed of change because less code needs to be written and maintained making integrations easier. These are all ideas that assume there are actual appliances that are software defined. As soon as general purpose compute becomes fast enough for heavy data plane traffic then the reality will be software defined networking in a virtualized way with autoscaling and all the other cloud goodies. However this reality is still some years off, unfortunately. In the short run virtualization of the control plane and software defined networking appliances [SDNA] for the data plane, is the most realistic option…
An online bookstore did not only redefine retail, content distribution and gave the postal services a second chance, it also is becoming the world’s data centre. The best way, to find out if the hot school girl is open for a new relationship, is now showing IT companies how to build servers & routers and telecom giants how people like to communicate. An online search and advertisement company has revolutionised how you find anything from text, images, location, etc. It redefined mobile computing together with a fruit-like branded company. It has global networks that even the biggest telecom incumbents can only dream off. It has cars that drive alone. Body accessories that puts science fiction authors next to historians.
At the same time stamps, travel agents, maps, telephone books, book publishers, bill boards, broadcasters, movie theatres, journalists, photo film, media storage, video cameras, taxi services, estate agents, high street shops, etc. have changed and not always for better.
If you work for a “traditional” company are you sure that in five years your company still is in business or can it be that some unknown small company launched a product that makes your company’s best products look like they belong in the history museum? Remember Nokia phones!!! Five years ago they had record sales…
If software disruptors have so much power, why aren’t companies hiring chief disruption officers. Senior executives whose goal it is to setup disruptive new product families that are owned by traditional players but are allowed to question any industry rules and launch cannibalising offerings often as independent companies.
It is a lot better that a big bank owns a bit coin exchange, a peer to peer lender, a crowd funded venture capitalist, a mobile payment provider, a micro payment cloud broker, a mobile app currency exchange, a machine learning financial adviser, etc. then being put out of business by any disruptive challenger.
Of course you can always copy the telecom model. Have everybody in your company look for potential cost reductions in the form of virtualized networks, squeezing (and killing) suppliers, etc. while your (mobile) broadband network is 12-36 months away from a data tsunami in the form of 4k streaming video, free mobile video calls, fitbits telling the cloud every minute (or second) your average heart beat and twenty other vital signs, free frequency crowd sourced mobile networks, etc. At a time where your business model has not seen a margin improvement in 10 years, your costs are exploding and your revenue will melt faster than ice in the Sahara.
Why don’t you think about hiring a chief disruption officer before you need to hire a chief miracle officer…
2014 will be the year in which telecom will be split into two. The ones that understand iCommunication and the ones that don’t. iCommunication is about giving a personalized communication experience to consumers and enterprises. Low cost subscription models and freemium will be the main business models. Low-cost pay per use is still possible but not for messaging or voice traffic. The value proposition needs to be higher.
What will this mean?
Bit pipes will become a reality in Europe and possible in the US (mainly dependent on what Google and others do). Telecom operators massive head count reductions. Nokia & Blackberry will be joined by other one time big telco names. The end of the world for some. Especially for those that belief telecom is a dividend generator or a bottomless pit for license taxation…
For consumers and enterprises there will be a new world of communication possibilities. Communication will be fully integrated into back office systems, e.g. CRMs like Salesforce store all calls. Improvements in voice recognition will make talking to machines a natural interface. Managing contacts will become a breeze. Forget memorizing phone numbers…
Communication as a Service will be the big innovation. The Cloud, Big Data, IoT will meet IP communication. Whatsapp will have a bigger brother for voice and video. Unless Google and Apple surprise the market with joint IP-based communication over LTE and WiFi. Asia, Africa and Latam will have two more years but most of their operators will make the same mistakes as the European ones.
Bit pipes are not even a safe business because the Ryanair of telecom will be able to quickly pickup mobile licenses and networks of the third/forth player, the one that goes bankrupt.
Things will not look nice for the next three years for some but we all knew that it was going to come for the last 10-15 years. Any CxO that calls this an unforeseen disruptive technology should be fired on the spot. The next edition of the Innovators Dilemma does not have to go back to the last century for examples. This is a textbook case for MBA students for years to come…
None of the incumbant telecom providers has put into place any Blue Ocean Strategies. Blue Ocean Strategies have made the Circus, Wine, Gaming, Airline, etc. industries exciting again, so why not apply it to the telecom market. The only telecom players, I know of, that implemented some blue ocean strategies are Free in France, GiffGaff in the UK and Freedompop in the USA. So why not do a Blue Ocean Strategy exercise in this blog post.
Here is my strategy canvas:
Traditional operators focus on charging heavily for calls and SMS although lately more and more packages with free minutes are available. International calls however are still charged extremely expensive. Mobile phones are subsidized up to 24 months and as such you need to stay with them for at least this period. Operators spend a lot of their money investing in the roll out and maintenance of their networks. They also have very complex pricing plans and as such need heavy investments in BSS.
MVNOs try to compete on price and most often do not subsidize mobiles. They do not have their own network as such they do not need to invest in it. They offer less tariff plan options. You are often free to change whenever you want. To make up for not subsidizing mobiles, you can get mobile loans which means you have some sort of permanence.
So how would Blue Ocean Mobile do it differently?
In line with Free’s example, call costs should be eliminated, including international costs. Mobiles should not be subsidized but cheap mobile loans should be offered for those that do not bring their own device [BYOD]. Blue Ocean Mobile should focus on LTE and try to win LTE licenses. However instead of doing heavy investments in installing antennas everywhere, Blue Ocean Mobile should only install antenna’s in those areas where few people live but connectivity is required, e.g. major highways. This is in line with Free’s strategy. However unlike Free, the operator’s network should not be built with unreliable WiFi hotspots. Instead specially designed “Personal Antennas” should be sold to everybody who wants one. What is a personal antenna? A personal antenna is a nanocell LTE antenna. A personal LTE antenna in your home that not only gives service to you but also to neighbours and people close to your home. The idea is that you become a sort of mini-LTE ISP to which others can connect. For every KB that gets transferred through your personal LTE antenna, you will get a revenue share. So it is in people’s interest to put the personal antenna in a place where it can service a lot of people and to have a good backbone Internet connection. People should be able to win back their investment in the Personal Antenna in a few months and make money afterwards. This should allow Blue Ocean Mobile to seriously lower their investment in rolling out an LTE network and to get free mouth-to-mouth advertising. Via a software-defined network [SDN] management system all nanocell LTE antennas are controlled by Blue Ocean Mobile.
Since Blue Ocean Mobile is focusing only on data traffic, it should work together with “over-the-top players” to offer a compelling list of services. Ideally Android Phones and the iPhone will use the data network for calling others instead of a circuit network. Customers should have a full range of BYOD management options so small and medium-sized businesses can easily manage the phones of their employees as well as push enterprise applications towards them.
Blue Ocean Mobile should also try to avoid investment in BSS. Tariff plans should be easy with the customer defining how many free megabytes they want to purchase for a fixed monthly fee and a simple extra charge for overage. So instead of operator defined tariff plans, everybody has a personalized tariff plan that they can adjust every day. Calls and SMS are charged based on data traffic not on per minute charges. VoIP solutions is the standard. Blue Ocean Mobile does not have a circuit network or SS7.
Blue Ocean Mobile is also copying the long tail support from Giff Gaff in which customers give support to other customers and are responsible for marketing. Unlike Giff Gaff not only prepaid but also subscriptions are supported. Like Giff Gaff customers get a revenue share when they participate in support or marketing.
Blue Ocean Mobile’s strategy is just very high-level and still needs in-depth analysis but it is an open invitation for innovative people to start applying Blue Ocean strategies to anything they feel in need of disruption.
Maarten Ectors is a senior executive who is an expert in applying cutting edge technologies (like Cloud, Big Data, M2M, Open Hardware, SDN, etc.) and business innovations to generate new revenues. He is currently looking for new challenges. You can contact him at maarten at telruptive dot com.
In the same week Twilio announced global SMS delivery, WAC was declared a failure.
Was it a surprise? Not really. Developers want simple APIs that are cheap and global. Twilio offers this, WAC does not. Are operators learning anything? The answer is they are not.
Telecom dogma 1: Users will not use a service that is not a global standard.
Internet response: proprietary APIs.
Telecom dogma 2: 99.999% availability with expensive hardware and Oracle RAC is the only way to launch a telecom service.
Internet response: Amazon and Rackspace virtual servers and MySQL.
Telecom dogma: I am the king. I put prices and users have to pay them.
Internet response: $1/virtual number, $0.01 SMS/call per minute.
How can a company with less than 100 employees offer better pricing than the actual network owners?
Operators are thinking ROI in 6 months and then ask what users might like. Internet players launch something simple and cheap, get continuous feedback and improve the service. In 12-36 months they dominate the world.
Know any bad service on the Internet that had a good ROI in 6 months? If you do not provide what users want, ROI will be a lie in your Excel. Forget 99.999%, forget RFPs, forget 40-70% revenue shares, etc. Either you innovate and launch in 3 months with daily improvements afterwards or you will not be an Internet player. The alternative is being a bit pipe. But even there Freedom Pop, Free.fr, Google FttH, etc. might spoil ROI…
Innovation is a high-risk activity. You invest in something with the only certainty that you know (some of) your costs and none of your future revenues. Traditional wisdom tells managers to focus on a business case. If the business case is more positive than the other alternatives and gives a good return-on-investment, then you should invest. However this approach is flawed when dealing with innovative projects. There is not reference to calculate future revenues. Yes you can “guestimate” and make nice assumptions. However no business case would have indicated that you should invest in a 23-year-old that has put photo’s of his fellow students online. Some years later that photo page is worth many billions. For every positive example unfortunately there are a long list of failures.
The solution: focus on incremental innovation. Or not?
Nokia would be the best example of this strategy. You make the best hardware platform, a relatively easy software and make sure people can reliably make calls and send messages. Every investment decision had a positive ROI and positive margins. Unfortunately Nokia’s stock is close to becoming junk.
Can you make a business case for highly innovative projects?
Yes you can make a business case. Especially costs can be estimated and some high-level revenue estimates can be made. As long as this business case is used to validate if the project is economically viable, then there is no problem. The major problem is when this business case is compared with incremental innovation projects or investments in the core business. The outcome will be always negative. Disruptive innovations tend to go for lower margin business with inferior offerings that often cannibalize the core business. Over time the disruptive innovation will move up the value ladder and will be able to substitute the core business. Unfortunately the Innovator Dilemma in which you attack your core business and substitute it with an inferior margin business is difficult to accept by conventional managers. There are some companies that have excelled at this. The best example is Amazon that is seeing its core business of book sales being threatened by electronic books. The answer has been to provide e-book readers and tablets below the hardware costs with the idea to dominate the electronic book market by offering a total solution to easily buy books.
The technique used by most companies when faced with disruptive innovation attacks is to consider them inferior and to ignore them. Unfortunately over time these solutions will substitute the existing offerings. This process is currently happening: e.g. SMS versus Whatsapp, LBS versus Mobile Phone location, calls versus Skype or Voxtrot, etc.
Unlike incremental innovation, being first in the market for disruptive innovation is key because the winner takes most of market. Number two can still take some market share but number three is no longer profitable. Examples: Google Search/Adwords/Youtube, Facebook, Linkedin, Twitter, etc.
The worst strategy for operators is the ostrich technique because implementing LTE will offer disruptive innovators all the tools they need to offer voice services over the top.
Discovery-driven planning versus business cases
In 1995 Harvard Business Review came up with discovery-driven planning. The idea has been successfully implemented by venture capitalists. You do not give money to a new venture to develop a new product, launch it and expand globally. You give money to develop a prototype in a few months. If this goal is met, you give money to validate the prototype with early adopters, etc.
Operators should start using discovery-driven planning to introduce disruptive innovations. Employees, partners, customers, etc. can “complain” about inefficiencies in the current offerings. The most urgent “inefficiencies” are selected, for instance via voting. Afterwards small innovation groups, made up out of experts in different domains, are formed to find solutions on paper for these “inefficiencies”. These paper-based solutions are presented to selected early adopters. Via continuous feedback the solution can be designed, the future price can be determined, the costs can be estimated and a high-level business case can be made. Early adopters are asked to find beta users. If a certain number of beta users express interest in the solution then the team will receive funding for a prototype.
Beta users are able to see the prototype come to live and to give continuous feedback. The prototype should evolve from paper to a real service in as few months as possible, 2-6. Afterwards the beta users get a limited amount of time to start subscribing to the real service and to extend the number of beta users. If a certain limit is reached within a certain time frame, then the beta product will get a next investment round. This investment round will bring the product from closed beta to a public launch. The last stage is expansion. If the public launch is successful then the last round of funding is provided that allows the service to expand, e.g. within all markets of the operator.
Any idea/service that does not make a stage gets killed. The complete disruptive innovation program should get a budget and should be initially independent from the core business. Direct support from the CEO and other senior executives is a must. Business cases are used to set prices, etc. but not to compare disruptive innovations with core business investments.