After speaking with several cloud telephony startups, it looks like telecom operators are like stamp vendors in a world of email dominance. The Innovator’s Dilemma seems to be claiming another victim soon.
CxO’s in existing telecom operators should be really worried. The major telecom cashcows are in danger. Calls and SMS will be substituted by apps like Voxtrot, Skype, etc. Access networks will be under extreme load when heavy smartphone, tablet and M2M usage will become mainstream. Also aggressive bitpipe LTE providers can have a Ryanair effect on the telecom world. Finally business solutions like PBX, etc. look antiquated compared to solutions like Invox, OpenVBX, Ringcentral, etc.
So what should operators do?
First let’s talk about what they should not do. Business as usual is not the ideal strategy. Telecom assets are likely to be substituted in the next 2-3 years, just as location has already been substituted.
Embrace Over-the-Top Player
Only few operators have done so but the best strategy to avoid disruptive competition is to embrace disruptive players. Trying to compete with on-premise equipment against IP-based Cloud-driven PBX-like services is impossible. Allow over-the-top players to offer their solutions to your customers and integrate with your network and your billing systems. Allow end-users a choice of competing solutions.
If you protect your assets from the rest of the world, then over-the-top players will find ways around them. Location has been substituted. There is a lot of effort being put in setting up micro-payment solutions. If operators want to keep an oligopoly on charging and billing then they should urgently open up both assets and make them available at very competitive prices.
Other assets to open up: numbering plans, call forwarding, subscriber data (either via opt-in or via anonymous aggregation), etc.
Assets should be made available with Web 2.0 APIs. New business models like freemium, subscription and advertisement should be put into competition with usage-based subscriptions.
End-users want choice and operators have been traditionally bad at offering it. Nobody wants a Facecopy, Smitter or a LinkedOn. End-users want the original. End-users want to choose themselves between competing products.
Open marketplaces in which developers, partners, end-users, etc. can sell solutions and services that are integrated with the telecom assets, should allow end-users to have an “App-Store”-like experience when they interact with their operator.
The operator should be a business enabler for small companies. Innovative products should be brought in via open communities and partners. The operator offers the infrastructure for small companies to act like global players: e.g. global sales channels, professional support, integrate assets once – deploy globally, etc.
End-users, be it consumers or businesses, need support. Dotcoms have been traditionally limited when it comes to offering phone support. However a lot of people do not feel like writing a web-based support ticket. Here is where operators could excel. Operators could work on building global support communities in which small companies get access to “call centers as a service”, “professional helpdesk as a service”, etc. A 5 people company should be able to offer global support via local certified partners and a common infrastructure that is offered by operators.
Operators as business enablers
Operators will only be able to survive the Innovator’s Dilemma if they start refocusing their businesses. Instead of being a selector of hand-picked high-priced services, operators should move to open markets where competing services are offered by thousands of partners. The operator moves from offering the services to becoming an enabler for others to offer services that are either based on the communication infrastructure but could also not be based on them. Operators have brands, offer trust, offer phone support, have direct sales channels, know the local markets, etc. Global small dotcoms could save enormous investments if operators would open these non-technology assets towards them and enable dotcoms to become global businesses for as small as they are in the beginning…
Voxtrot is built by some of the original Skype team members. Unlike other mobile voip apps, this one has a real potential to change end-user’s behavior. The big difference with Skype and others is that Voxtrot does not assign you yet another username or phone number. You register with your original phone number. When you are calling somebody then Voxtrot will check if the other party is also connected to Voxtrot. If both parties are connected to Voxtrot then the default option will be to use VoIP instead of a mobile call. The Voxtrot call will be “free” – at least if you are on WiFi or have a large enough data plan – instead of paid. As such Voxtrot will have stolen a call away from the mobile operator…
Although Voxtrot is essentially similar to Skype and others in VoIP technology, the easiness of going VoIP together with the social aspect of inviting all your friends, is really setting it apart from the competition.
Voxtrot is currently only available for Android but plans for an iPhone version were made public.
Operators will have to accelerate their search towards alternative revenue sources or risk becoming bitpipes sooner than later.
Long Term Evolution, LTE or sometimes also referred to as 4G, is the next generation mobile network technology. It promises to bring network speed to the mobile that can beat the current ADSL offerings. In the beginning LTE prices might be high but competition especially from new entrants – “the Ryanairs of telecom” / “4G Bitpipes” – are likely to bring affordable pricing plans soon. The US already has the first “4G Bitpipe players”: Clearwire and Lightsquared.
So what does it mean if tomorrow you can have ADSL-like speeds for an (almost) flat-rate. In practice, end-users would be crazy to still pay €0,15 for minute for a call or per SMS. Skype with its optimized codecs (e.g. SILK) will offer better voice quality and will throw in video for free. Instant messaging, Twitter and Facebook chat will completely substitute SMS. This will be the end of the telecom cash-cows: calls and SMS…
What will be the next cash-calf? For those operators that are still looking for the “Killer App” – that single technology that only telecom operators can offer and is extremely successful – I have some news. Postal services are still looking for their killer app after the stamp was substituted by email. So is the music industry. There is no economic law that says that a former monopolist has the right to pick its next monopoly.
So if there is no “Killer App” does it mean that all telecom operators are doomed to become bit-pipes tomorrow? Over time several will but not necessarily all. Although dotcoms have the sexiest solutions, large corporations are unlikely to massively shift their communication services to a heavily indebted 25 people company close to a surf-paradise beach. So due to inertia the abyss is still some years away. However should you just give up and let consumer ARPU drop year by year?
I believe there is still a window of opportunity for telecom operators to bring new appealing services. However they must be willing to abandon some important historical laws of telecom.
1) Standards slow innovation
Collectively negotiate a standard that is more a political compromise then the simplest, most effective way of doing things is not helping innovation. In the Web 2.0 era, dotcoms launch new ideas all the time. Most of the time it is a “winner takes it all or at least most” market. So the winner sets the standard. How many Twitter competitors do you use?
By designing an architecture around obscure standards, few operators have employees that can explain their company’s architecture. Google and others have invested heavily in their architecture. They constantly update it. But on a blackboard a Google architect can draw you exactly why they choose Bigtable, GFS, etc.
2) Don’t talk about subscribers, call them users
A subscriber is an entity that signs a monthly contract with a telecom operator. By doing so a subscriber seems to subscribe to a list of applications that the marketing department of the telecom operator has preselected as the most adequate for him or her. The operators seems to know what is best for their subscribers. WRONG!!!!!!!!
Call them users and give them the tools to select/create/design/customize/configure the services they want. Let the community vote about which feature is needed. Ask users why they stop using a new service after a week. Let users define the price they are willing to pay by offering multiple alternative solutions in different price ranges with different feature sets.
3) Go from a catalog of few to an infinite catalog
If Telecom can no longer survive based on a few hit services, then they could go to the other extreme: the long tail telco. A long tail telco offers an almost infinite catalog of solutions that combine communication assets with other solutions in order to solve user’s problems, to make them more productive or to entertain them.
Users should be able to combine products to resolve their needs. A good example is what is offered by Invox. Via wizards, templates or a Yahoo Pipes drag-and-drop configuration, small to large enterprises can configure their own telecom services like call centers, PBX, etc. They can easily integrate the best of the Internet (Salesforce, Google, Yahoo, etc.) with IP-based communication. You use what you need. You configured it the way you want it.
What is missing is a market in which those users that don’t want to do it themselves or who need specific support (e.g. custom integrations), can go and find the right help.
Telecom operators should no longer focus on end-user services but on enabling the end-user and an eco-system of independent third-parties to be able to create and sell solutions and services to one another. As long as it is easier, faster and cheaper for a third-party to use an operator’s tools and assets they will see no need to design an alternative solution. This brings us to the next point…
4) Monopolists die because of greediness
Revenue shares of 40-95% are often not in line with the value and risk the operator takes in the value chain. Those operators that think that “squeezing partners until the last drop” is a good long-term strategy, will be the first to die. Innovation needs out-of-the-box thinking. People don’t take risks if they don’t see rewards.
You will need to do more than to just blindly follow these four rules. But by applying them and listening to users, you are on your way to create new cash-calfs…
The last player to join the attack on the telecom operator’s business is Apple: How to bypass carriers, Apple-style? (Special thanks to Dinesh Vadhia).
Apple never played according to the telecom rules in the first place. They have been the only mobile hardware vendor that could set the rules instead of negotiate them.
Who is attacking my assets?
So which telecom assets are currently under threat:
- SMS – instant messaging has been attacking SMS for years but now with the next generation of smart phones the number of SMS killer apps has exploded.
- Voice – Skype and VoIP providers have been attacking voice calls for years. However also here smart phones are accelerating decline.
- Roaming – Apple’s independent SIMs could easily attack the roaming segment. Also VoIP on Smart Phones will.
- Billing – Micropayment solutions from Paypal and Google Checkout are trying to enter this domain. Squared from a former Twitter-employee is attacking the mobile payment terminals in shops.
- Spectrum – Google’s CEO is the chairman of the New American Foundation that is trying to convince the American government to open medium-distance spectrum for free. Sort of WiFi but with kilometers reach.
- High-speed interconnect networks – Google is paying part of some of the under-sea links that connect multiple Asian countries.
- Fiber to the home – Google is rolling out fiber to the home.
- VAS – mobile apps are taking over from the value-added services.
- PBX like Business solutions – on-site premise equipment is being substituted by virtualized Cloud-based solutions.
- The telecom network – telecom operators are becoming bit pipes. New bit-pipe-only companies however are trying to specialize in this domain, making it hard for communication service-oriented operators to keep on making the same profits.
What should operators do?
If there was one simple answer, I would not be writing this post but living on my own private island 😉
However if history can be a teacher, let us look at an industry that has been facing similar threats: Hollywood. Prices of distributing digital content have fallen close to zero. However the industry has been trying to keep on charging €12-€30 for CDs and DVDs. They have hardly embraced digital distribution and are now in a negative spiral of demise.
Telecom operators can easily get stuck in this same vicious circle. History has been cruel in the past: extremely lucrative postal monopolies were destroyed by email. There is no rule that states that economic wealth from one business model is substituted by a similar lucrative business model afterwards. Often analogue dollars are traded for digital pennies.
Accept digital pennies but collect them all
The first survival strategy is to embrace change and to go for digital pennies. This is often hard to do within existing companies. As such the proposed strategy is to set-up a parallel organization whose objective is to focus on these new business models and how to make money with them. Let the main company focus on the telecom hits (Voice, SMS, etc.) and the other company on the long-tail telco services.
Long-tail telco services are all about enabling communities of developers and companies to create new and innovative telecom solutions that they can sell to others. The focus should be on enabling others. Not on building them yourself. Being an App Store for telecom network-assets-based applications and not a builder of telecom services.
This parallel organization should be in close collaboration with partners and even dotcoms. If you can´t beat them, join them. Find ways of enabling startups to become successful with your network and other assets, not on building a parallel solution around your assets.
The music industry never understood this message but hopefully the telecom industry does.
Go IP and forget Circuit
Accelerate IP solutions and forget about circuit networks. The speeds at which services are rolled out in a circuit-based network are too slow to fight off competition. Isolate the circuit-based network elements and put an IP-based front-end.
Use the Cloud to quickly launch beta services.
Avoid building infrastructure and use the Cloud to innovate. In the telecom world services are often not launched until they are perfect. But perfect for who? It is better to launch beta services quickly and get real customer feedback instead of marketing-surrogate feedback. Launch multiple services. Check which are the successful ones. Kill the others and heavily invest in the successful ones. Cloud computing and open source can dramatically reduce innovation costs.
Build long-tail services and a common innovation-ready architecture
If you are going to work with hundreds of partners to quickly innovate then the way to interact with them is via self-provisioning. Build billing, telco network app stores, customer care, monitoring, etc. solutions that allow a third-party to automatically provision and test their solutions. Be open with interfaces and light on approval. Let them approve a web-based contract instead of sign a physical paper.
Also enable innovation via the right infrastructure. Let teams focus on the business and services. Not on storing data, managing users, billing, monitoring, etc. Common service APIs to interact with assets and common ways of building new services should accelerate time to market and avoid reinventing the wheel.
This is a time for innovation together with smart partners. Not a time to focus only on CAPEX reduction. Too many effort is spend on operating as cheap as possible and not on generating new revenues. At the end the best CAPEX reduction is to shutdown a telecom company that does not innovate at market speed and became obsolete 😦