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Networks & Infrastructure
New Services And A New Mindset
Intangibles Will Make Or Break A Service Provider
by Keith Willetts, Chairman, TM Forum
In the cutthroat world of communications services, operators are being challenged from every side by new competitors, new opportunities and new problems. I like to use the “three curves” model to explain what’s happening.
Curve 1 is revenues from traditional services which are, of course, declining for most providers as prices fall at typically 8-10% a year. Curve 2 is the cost of delivering those services, which is also going down but at a much slower rate. So it follows that profits are also dropping.The cavalry coming over the hill to save the day is Curve 3 - new service revenue. But in many cases the horses are a bit lame, because new service revenues are coming in slower than operators would like and generally at much lower margins that the services they are replacing. For example, operators have been adding new broadband revenue to replace the gap left by declining voice revenues. But broadband has not been easy or cheap to deliver, yet it is in a brutal market, almost conforming to Moore’s law in halving in price and doubling in speed every year or so.
The economic reality for most operators is that they need to find these new revenue streams and fast. But it’s not just the telcos that have figured out that this is a great idea; others like web, media and retail companies are also cluing in that there are new channels and new markets to exploit.
Nobody is quite sure who is going to win or lose in the new services market – particularly for content. But everyone would like to own the customer and have their brand in the public’s face. The web and media companies would like the telecom companies to simply be channels to reach an audience—much like broadcast TV or DVDs—while operators see their customer base as ripe for new services like IPTV and mobile TV with media companies at the back of the value chain.So everybody is jockeying for position in this new content-based world, and it’s a battleground that’ll play out over the next several years with many combinations co-existing.
Don’t Forget the Back Office
From a TM Forum perspective, we are not venturing a guess as to who will win that race. What we are trying to say is that the implications for delivering content and information-based services come from the things you can’t see. The intangibles like customer service, uptime, simplicity of use and “it just works” reliability are what will make or break service providers.
So far, many providers have a pretty dismal record on this front. A recent article from MSN entitled “The Customer Service Hall of Shame” ranks the companies that have the worst customer service record, as compiled by survey results from 3,000 respondents.
Six of the 10 worst companies were phone or cable companies. They included Sprint, Comcast, Time Warner Cable, AT&T, Verizon and DirecTV. Being bad at customer service is definitely not a good starting point for companies that are looking to branch out into other markets, especially when customers already ‘know good when they see it’ from years of using DVDs and broadcast TV. On-demand content services are one new service area where the customer’s tolerance to new things isn’t going to be very long.
What the service providers need to get into their DNA is that it’s the stuff behind the scenes that really matters. Once they’ve mastered those areas, the new revenue streams will be that much easier to bring in.
What’s truly important is not just getting the plumbing right; it’s the back office they need to focus on. Creating the service, getting customer service right, getting the billing and accounting right, and delivering the quality of service are really important.
The motto I like to bring in here is, “If you can’t manage it, you can’t monetize it.” The simple reason for this truism is that if your service stinks, nobody will buy it. And if they are foolish enough to buy it, they won’t stay around for very long.
That may sound harsh, but at a time when all the players are getting into each other’s business, nobody quite knows what they are doing or how the market will shake out.
New Services Save the Day
From a telco perspective, to be a winner in today’s telecom environment you really need to be able to manage those 3 curves I mentioned earlier. The hardest part is arresting the decline in traditional services. With companies like Skype giving service away for free, it’s a challenging proposition.
All providers know the importance of getting their operating costs down, but it takes a long time.
The quickest way to solve the 3 curves problem is through the introduction of new sources of revenue. But the hiccup here is that it’s a new frontier for providers who are accustomed to building very scalable services by deploying a network, billing system, customer care, the whole nine yards. You’ve got this complete entity, and when it’s complete they turn it on and start marketing it. But to get from start to finish can take one or two years.
That’s how we’ve ended with all of these stovepipes of components. It would be the equivalent of a car manufacturer building a new factory, new motors, new wheels, new everything each time they introduced a new model and then unleashing the new car on an unsuspecting market.Of course, that’s not how they do it at all. They reconfigure and repackage existing components and perhaps build a few new ones to make an entirely new product. It’s the same for computer manufacturers or companies that make most any kind of consumer goods.
So the lesson from manufacturing is to build services from reusable components, which is a huge mindshift for service providers. A lot of operators are adopting service delivery platforms (SDPs)—which have as their underpinnings this concept of reusable components.
The TM Forum has just released a major new piece of work that presents a unified view of what an SDP really consists of. We were able to get all the major vendors and a good number of operators to come to an agreement on what’s in an SDP and the value of the concept of reusable components.
We’re in pioneering days here, but we’re slowly moving toward the objective of not having to rebuild the stovepipes each time you want to roll out a new service.
Rather, we want to get to a point where we can drag and drop components, click the enable button, and be done. Only then can you move at the web speed that content and information services will require.
Shifting Mindset
What we’re really talking about is a culture of change and moving as far away from the monopoly mentality that a lot of carriers still cling to. As users have become more fickle about their services, providers can no longer count on soft launches and stumbling out of the gate. The operators who are winging it with the old model of launching services are really dancing with death, and there needs to be a serious investment in a new way of doing things for an entirely new world of telecom services.
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