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…
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…
There are several long tail sales channels that are currently showing results. Clear examples are Amazon, Netflix, Google, etc. However there is a key area that is currently not resolved: long tail post-sales support.
In the telecom world, operators are not launching long tail applications because they can not offer post-sales support. A lot of small innovative solutions are not meeting the public because the operator can not afford consumers or small businesses to call massively their call centers. Every call-center call costs €1 or more and training call center agents on thousands of niche applications is virtually impossible.
A director in a tier 1 operator told me the other day that what we are missing is the container for long tail post-sales support. His logic was that the second biggest invention after the Internet was the container and the pallet. They allowed goods to be shipped cheaply all over the world. The Internet accelerated the purchases but the container made it possible that China and others produced it and the rest of the world consumed it.
We need to find the container for long tail post-sales support. The simple solution that allows people to understand which services and solutions have a best-effort, basic or top-class support and to get their problems resolved in the shortest and easiest way.
What is the problem? An individual programmer can build a very successful application, launch it on a telecom cloud and get virtually overnight thousands of customers. This programmer would be totally overwhelmed with bug reports, feature requests, integration needs, customization needs, training needs, etc. from thousands of consumers and small businesses. A business can not afford a critical service not to be available during hours or even minutes or seconds. A single programmer might be a guru in building an innovative application but might lack basic skills in supporting it.
The same would be true if we talk about niche solutions, open source solutions, general solutions with long tail plugins, telecom PaaS platforms, etc.
So do I know what the container is? Not yet but I am actively reviewing different solutions. If you are interested in participating then drop me a line: maarten at telruptive dot com.