The taxi world was unchanged for years until innovators took an interest in it. Hailo made it super easy to get a taxi. Uber makes taxis irrelevant. The worst thing for taxi drivers is that they were out of control of their own destiny. What would be the worst nightmares for telecom operators and traditional network equipment providers?
1) voicemails and millions of VAS that customers love
Why would this be a nightmare? Simply the fact that the most likely provider of millions a really valuable communication services is unlikely to be a traditional telecom provider. They haven’t been able to do it for years. Cloud providers or challengers are ideally positioned to add customisable cloud communications to their portfolio. Salesforce already offers WebRTC.
2) Chatty IoT
Billions of dumb and smart things will be connected to the Internet in the next 12-24 months. What if IoT hardware providers see the internet as a free transport layer and share useless data? Any device that sends 200 bytes every 5 seconds and of which 1 million get deployed, provokes 3 petabytes of useless data every day. After 10 days it would have produced an equal amount of data as the total combined literature in any language from the beginning of time until some years ago. There are many devices that could be chatty, e.g. heartbeat monitors, temperature and other sensors in home appliances like fridges, etc.
3) Cheap 4K security cameras
As soon as 4K cameras become cheap (<$50) then a tipping point will push lots of homes and businesses to install them. One cloud company is enough to provoke broadband hell. There is not a single broadband network that can handle 4K video upstreaming at large scale.
4) Mexico’s community mobile operators being successful
In Mexico there are several remote regions that were not served by traditional mobile operators. The Mexican government allowed anybody to use spectrum in these regions to build alternatives options. The innovators have moved in. What if they become too successful and customers like their services more than what traditional mobile operators are providing?
5) An innovator that uses technology to provoke telecom havoc
Until now over the top players have ignored telecom operators and are trying to eat their lunch. What if the next innovator designs solutions in such a way that operators can choose between the stick and the carrot? Ignore them and suffer or play according to their rules. It is easier to do than operators think…
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…
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…
LTE roll-outs are taking place in America and Europe. Over-the-top-players are likely to start offering large-scale and free HD mobile VoIP over the next 6-18 months. Steeply declining ARPU will be the result. The telecom industry needs new revenue: telecom revenue 2.0. How can they do it?
1. Become a Telecom Venture Capitalist
Buying the number 2 o 3 player in a new market or creating a copy-cat solution has not worked. Think about Terra/Lycos/Vivendi portals, Keteque, etc. So the better option is to make sure innovative startups get partly funded by telecom operators. This assures that operators will be able to launch innovative solutions in the future. Just being a VC will not be enough. Also investment in quickly launching the new startup services and incorporating them into the existing product catalog are necessary.
2. SaaSification & Monetization
SaaS monetization is not reselling SaaS and keeping a 30-50% revenue share. SaaS monetization means offering others the development/hosting tools, sales channels, support facilities, etc. to quickly launch new SaaS solutions that are targeted at new niche or long tail segments. SaaSification means that existing license-based on-site applications can be quickly converted into subscription-based SaaS offerings. The operator is a SaaS enabler and brings together SaaS creators with SaaS customers.
3. Enterprise Mobilization, BPaaS and BYOD
There are millions of small, medium and large enterprises that have employees which bring smartphones and tablets to work [a.k.a. BYOD – bring-your-own-device]. Managing these solutions (security, provisioning, etc.) as well as mobilizing applications and internal processes [a.k.a. BPaaS – business processes as a service] will be a big opportunity. Corporate mobile app and mobile SaaS stores will be an important starting point. Solutions to quickly mobilize existing solutions, ideally without programming should come next.
4. M2M Monetization Solutions
At the moment M2M is not having big industry standards yet. Operators are ideally positioned to bring standards to quickly connect millions of devices and sensors to value added services. Most of these solutions will not be SIM-based so a pure-SIM strategy is likely to fail. Operators should think about enabling others to take advantage of the M2M revolution instead of building services themselves. Be the restaurant, tool shop and clothing store and not the gold digger during a gold rush.
5. Big Data and Data Intelligence as a Service
Operators are used to manage peta-bytes of data. However converting this data into information and knowledge is the next step towards monetizing data. At the moment big data solutions focus on storing, manipulating and reporting large volume of data. However the Big Data revolution is only just starting. We need big data apps, big data app stores, “big datafication” tools, etc.
6. All-you-can-eat HD Video-on-Demand
Global content distribution can be better done with the help of operators then without. Exporting Netflix-like business models to Europe, Asia, Africa, Latin-America, etc. is urgently necessary if Hollywood wants to avoid the next generation believing “content = free”. All-you-can-eat movies, series and music for €15/month is what should be aimed for.
7. NFC, micro-subscriptions, nano-payments, anonymous digital cash, etc.
Payment solutions are hot. Look at Paypal, Square, Dwolla, etc. Operators could play it nice and ask Visa, Mastercard, etc. how they can assist. However going a more disruptive route and helping Square and Dwolla serve a global marketplace are probably more lucrative. Except for NFC solutions also micro-subscriptions (e.g. €0.05/month) or nano-payments (e.g. €0.001/transaction) should be looked at.
Don’t forget that people will still want to buy things in a digital world which they do not want others to know about or from people or companies they do not trust. Anonymous digital cash solutions are needed when physical cash is no longer available. Unless of course you expect people to buy books about getting a divorce with the family’s credit card…
8. Build your own VAS for consumers and enterprises – iVAS.
Conference calls, PBX, etc. were the most advanced communication solutions offered by operators until recently. However creating visual drag-and-drop environments in which non-technical users can combine telecom and web assets to create new value-added-services can result in a new generation of VAS: iVAS. The VAS in which personal solutions are resolved by the people who suffer them. Especially in emerging countries where wide-spread smartphones and LTE are still some years off, iVAS can still have some good 3-5 years ahead. Examples would be personalized numbering schemas for my family & friends, distorting voices when I call somebody, etc. Let consumers and small enterprises be the creators by offering them visual do-it-yourself tools. Combine solutions like Invox, OpenVBX, Google’s App Inventor, etc.
9. Software-defined networking solutions & Network as a Service
Networks are changing from hardware to software. This means network virtualization, outsourcing of network solutions (e.g. virtualized firewalls), etc. Operators are in a good position to offer a new generation of complex network solutions that can be very easily managed via a browser. Enterprises could substitute expensive on-site hardware for cheap monthly subscriptions of virtualized network solutions.
10. Long-Tail Solutions
Operators could be offering a large catalog of long-tail solutions that are targeted at specific industries or problem domains. Thousands of companies are building multi-device solutions. Mobile & SmartTV virtualization and automated testing solutions would be of interest to them. Low-latency solutions could be of interest to the financial sector, e.g. automated trading. Call center and customer support services on-demand and via a subscription model. Many possible services in the collective intelligence, crowd-sourcing, gamification, computer vision, natural language processing, etc. domains.
Basically operators should create new departments that are financially and structurally independent from the main business and that look at new disruptive technologies/business ideas and how either directly or via partners new revenue can be generated with them.
What not to do?
Waste any more time. Do not focus on small or late-to-market solutions, e.g. reselling Microsoft 365, RCS like Joyn, etc. Focus on industry-changers, disruptive innovations, etc.
Yes LTE roll-out is important but without any solutions for telecom revenue 2.0, LTE will just kill ARPU. So action is required now. Action needs to be quick [forget about RFQs], agile [forget about standards – the iPhone / AppStore is a proprietary solution], well subsidized [no supplier will invest big R&D budgets to get a 15% revenue share] and independent [of red tape and corporate control so risk taking is rewarded, unless of course you predicted 5 years ago that Facebook and Angry Bird would be changing industries]…
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:
- The bit-pipe
- The cash-cow manager
- 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…
SS7 networks or “intelligent networks” have been the core reason why network-based services can not be rolled-out quickly. Specialized skills are needed to launch a new SS7 service.
Currently operators are investing in service delivery platforms or SDPs to move the network intelligence out of SS7. These SDPs will be holding modern copies of the SS7 services.
However do we need intelligent networks? Why can’t we have dumb networks?
The Internet is a dumb TCP/IP network. Intelligence is not in the network but in the applications that run on top of it. Why are telecom networks different? Why do routers have to know if the application is voice, SMS or data? Why does the network have to know about conferencing, numbering plans, etc.?
One example: MSISDN
Why do you want to hard-code an end-user identifier throughout your network & billing systems? Why can’t we have a mechanism like a unique IP address and several DNS names for it. I don’t want to learn a long list of digits to identify a friend. I would like to control my own numbering plan. My direct family starts with 1xx. My friends 2xx. Alternatively I can use their email. I should be able to call a company with its DNS. Ideally I can use the Facebook or Twitter id as well. This would all be possible provided that an internal identifier would be mapped to an end-user identifier instead of using one unique identifier.
Example two: CDRs
Why should every network element know that for every call you need to generate a CDR. However for data, charging is not based on seconds or minutes but data volume? Cannot the metering be done outside the network? Why are we generating millions of CDRs when end-users have a flat-rate or are calling a free number? With software-as-a-service metering can be different per application (pay per GB of storage, per MB of network traffic, per user per month, per company per year, etc.).
The proposal: Define the metering mechanism for each call, SMS or application ad-hoc and use specialized meters outside of the network to meter the service. Time-based meters allow any type of data to pass through to the network but will bill by nano-second, millisecond, second, minute, hour, day, week, month, year, etc. You just configure that this voice application needs second-based billing, that adult entertainment application needs minute-based billing and that compute server needs hourly-based billing. Flat-fee calls would not have to be metered and as such don’t need a meter. Meters could be gateways that scan if data goes through. However they could also be event-based and delegate complex metering into an application to warn them when an event has to be billed, e.g. application download, new user registration, etc.
Simplifying the network by taking out complexity to manage/launch/meter/monitor services would substantially reduce the cost of network equipment. Perhaps to such extend that it becomes too small to meter services and as such also metering can be eliminated. Pure bit-pipe operators could probably do with an Excel or Access database as their billing system.