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Carrier Services
Analysis
Plotting a Telco 2.0 strategy
Operators must make a leap of faith to compete in IP-based services
by Michael Crossey, VP of Marketing, Aepona
Somewhere, in a faraway telecom Utopia, operators spend all their time counting their money, thanks to a never-ending spring of innovation and creativity from which flows a constant stream of new applications and services that magically transforms directly into pure profit.
Meanwhile back in the real world, operators face shrinking margins and ARPU, and calls for constant reduction in capex and opex to compensate for these losses.
In the early, heady days when mobile communications represented the new way to do business and mobile phones were new shiny status symbols, the operators called the tune and were able to name their price for everything. Similarly, with fixed line services going digital and carrying not only voice calls but television and broadband, consumers signed up in droves.
The heat is on
Now the novelty has worn off. 24/7 connectivity is regarded as a right, not a privilege. The new 3G iPhone is given away free on a contract and even teenagers have BlackBerrys. You can slash your monthly cable bill simply by threatening to move to a competitor.
End users want to pay less and get more. They can switch networks to get a better price deal, because there’s not much difference in the service and no compelling differentiators. In addition, both fixed and mobile operators face increasing competition from Internet-based service providers such as Google and Yahoo! and device players such as Apple and Nokia, who with their own “over the top” communications and content services, threaten to marginalize the operators and push them a long way down the value chain.
Should operators fight these trends and compete with the new entrants, or embrace this new era and collaborate with them? To answer this question, operators need to retrench and realize just how valuable their assets are. In terms of service delivery, operators are in a truly enviable position, with no comparable competition that can deliver the same sort of capability.
Users who want a mobile device can only use one of the spectrum-owning operators’ networks (or their licensed MVNOs). Users who want to use the Internet have to have an ISP. In turn that ISP either has to utilize an incumbent operator network, or build its own — i.e. Virgin in the UK. Google doesn’t own the Internet; it simply exploits it, brilliantly.
Fight or flight?
An operator therefore faces a choice. On the one hand, it can sit back impassively, accept payment for being “a dumb pipe” and allow new market entrants to commoditize its network and airtime, and also usurp its relationship with subscribers with features and services in which the operator plays no part.
This is of, course, commercial suicide — it stifles growth and stunts the potential of additional revenue for the operator from its own new services. It also leaves the way clear for more innovative competitors to steal subscribers and market share with competing propositions.
On the other hand, the operator can choose to secure its position in the value chain and drive the market forward by opening up its greatest, most valuable asset — its network — to the rest of the world.
The result is a catalyst for innovation: enabling independent developers to build and roll out — quickly and easily — new applications and features that not only run over the network but which also take full advantage of all the functionality built in to the network — such as location, presence, messaging and billing. An ever-changing range of innovative services can be delivered directly to customers in both the consumer and enterprise sectors.
Operator makeover
Operators must begin to reinvent themselves as service enablers. They must embrace the model known as Telco 2.0 — a new environment where the telecommunications industry and Internet worlds converge, enabling new and exciting features that combine the best of the web with all the essentials enabled by a telecoms network — whether that’s voice, SMS, presence and location, or simply capturing the moment with a picture or video.
Just as the “open access” medium of the internet nurtured a wave of innovation know as Web 2.0, which enabled people to collaborate and share data in new ways — whether through consumer-based sites such as YouTube and Facebook, or business-focused tools such as Salesforce.com — so too does Telco 2.0 hold the promise of similar innovation from a communications perspective.
In particular, there is pent-up demand among enterprises to be able to “telco-enable” their existing IT applications — such as Field Force Automation, Asset Management, Workflow and Customer Relationship Management — with additional communications functionality, as a means to improve cost efficiency , productivity and customer service.
If network operators collaborate directly with independent developers and partners on the Internet, they can not only meet this demand but also use it to differentiate themselves from the competition, which in turn will open up opportunities for new revenue streams.
Making it easier
Until now, the complexities of integrating new applications and components into a network have invariably drawn out the time it takes for an operator to launch any new services into the market. Today, with the right technology, an operator can safely open up its network, make new money and foster innovation as well — not with a single new “killer application”, but rather a “killer environment” for a variety of niche or specialist applications that appeal to multiple smaller user groups.
Streamlined integration and management of a broad set of IT and telecom network interfaces and protocols means that implementation on the operator’s network is a simple, straightforward task. The operator can set up and bring to market a wide variety of applications from a wide of variety of developers — quickly, and easily — in a way that is analogous to the Internet business model.
This “long tail” incorporates a broad range of different applications for use by niche market segments and mass-market consumers alike, as well as custom-made tools for large-scale enterprise customers. And as with the Internet, any application can be torn down if it doesn’t work out or fails to pay its way.
Staking a claim
The scope of Telco 2.0 features that can be created is limited only by the imagination of the developers that create them. Simple examples are “mash-up” applications which let you send an SMS from within a PC-based calendar application or which alert you whenever a friend is nearby.
Organizations in both the private and public sectors, meanwhile, can incorporate telecoms functionalities such as location, messaging and call control into their existing business processes, as a means to improve work-flow efficiency, manage logistics in real-time and enhance employee collaboration.
From a consumer perspective, the operator can stake a claim in the burgeoning space for the highly targeted, quirky and niche applications that characterize the Web 2.0 phenomenon. By enhancing these with an additional telco dimension, the operator gets to play a part in the value chain and collect the rewards.
Operators can also leverage their network assets to engage with retailers, marketers and advertising agencies to provide new and innovative ways of communicating with customers and audiences. Working together, they can leverage the operator’s network assets to promote a product or brand on a large scale with special offers delivered via a desktop plug-in or widget.
Operators can actively participate in the Telco 2.0 market by enabling the delivery of innovative third party applications quickly and easily. Applications that appeal to multiple specialist and niche audiences in both the enterprise and consumer spaces — providing valuable wireless comms functionality for applications designed for use in a variety of sectors for a variety of purposes.
If you love your customers, set them free
It’s clear that operators face increased competition from rivals together with outside regulation, both of which are eroding the margins from the industry’s “cash cow” services — voice and SMS. Revenue contributions from mobile data, meanwhile, remain in single figures.
In crowded markets where penetration often exceeds 100 percent, it can be difficult for an operator to distinguish itself from its competitors if it can only offer the same services. To differentiate, it needs to be able to offer something new and different — quickly.
At the moment, unlike Microsoft, Google, Yahoo!, Apple and Nokia, the operators still own the vast majority of customer relationships. But erosion is already beginning — witness iTunes — and if they’re not careful, they’ll have a mountain to climb to claw back revenue and market share from the competition.
To participate successfully in Telco 2.0, operators must make “a leap of faith” — opening up their networks to foster application and service innovation, and also setting their customers free to access and use a wide range of new services and features.
Providing such a broad choice perversely puts the operator back in the telecoms market driving seat. With Telco 2.0, they get to retain control of their customer relationships and add further value, while also calling the shots when it comes to diverse, effective and profitable service delivery.
But they need to move quickly. Operators have the networks, they have the users, and they have the billing mechanisms. By exploiting their own routes to market, operators not only get to dictate the delivery parameters for existing services and content, but also can be in a position to participate actively in the creation of new services and markets in the future. All it takes is that first step.
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