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…
At the moment teenagers are accustomed to paying for SMS (bulk tariffs) and voice calls (if they use them at all). However since mom and dad pay, they are just worried about staying below their parents ‘ anger limit.
Everything else in the digital world is free to them. Either legally free from the likes of Facebook or Twitter or illegally free from the likes of eMule.
We are at the doorstep of most teenagers switching from SMS enabled phones to smartphones and tablets. This means that there are two possibilities: telecom becomes free or mobile Internet becomes paid.
My guess: telecom becomes free. SMS will be substituted by Twitter and Instant Messaging. A 100-300MB of data traffic can easily pay for thousands of instant messages and social network updates. Likely free mobile apps that optimize data exchanges will be very popular with teens. The net effect will be that teens will no longer see the relationship between sending a message and paying for it. This will prompt them to move massively to the free mobile Internet.
However is there a way to move paid to the mobile Internet?
Not at the current prices. History would repeat itself like in the music industry. A digital technology comes but Hollywood tries to maintain an artificial high price even if distribution prices fall close to zero. CDs cost cents. Digital distribution even less. However you still find CDs that cost more than €15-€25. The result is that teenagers find ways not to pay.
How to do it differently? Move from micropayments (5-15 cents/SMS) to nanopayments (0.01 or 1 cents/event), micro-subscriptions (5-15 cents/month) or freemium. If mobile app designers could have access to a simple interface to charge nanopayments on your phone bill in a uniform matter, then they would not give you an article for free but they would want you to pay 0.05 eurocents for it. You wouldn’t mind such a small fee but lots of nano-cents convert to real money for a successful site. Also micro-subscriptions would allow teenagers to subscribe to a premium service without having any parents worried about phone bills. The last business model (freemium) has been described in another article.
Failure to teach today’s teenagers to pay for the Mobile Internet will mean that free will be tomorrow’s only Digital business model. This is not necessarily bad for site owners that can find ways around it via advertisement or selling customer’s data. However telecom operators will see their only income come from monthly subscription fees that will only go downwards…
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.