In our introduction to the Telco 2.0 methodology we said the first step was to define the process. The process is about one thing — preparing your business for a Telco 2.0 (all-IP, modular, interoperable, layered) world. To do this we need to A-C-T, a “mash-up” of best practice in Strategic Planning, Product Innovation, and Change Management, created specifically for Telco 2.0:
- Appreciate more fully the fifteen Telco 2.0 Key Transformation Issues that need to be addressed to stimulate sustainable growth. (That’s the focus of this post and, in 150 pages of more depth, of our Telco 2.0 Market Study.)
- Clarify how to approach Business Model Innovation (our next blog post on methodology). Most business people have an intuitive understanding of business models, but a documented and telco-specific framework provides the essential structure for debate and business model redesign.
- Test the ideas in the market by focusing on a few key areas where new business models and customer propositions can be applied. Once you’ve learnt how to apply Telco 2.0 thinking you can then apply the lessons more broadly across the organisation.
The deep telco-centric insight is really in the tools that companies can use in defining Telco 2.0 strategy, rather than the process itself (which as noted is adapted from current corporate best practice). In this post we’ll drill down on the key transformation issues that need to be addressed. This situation analysis requires you to address six areas:
- Market understanding (which our customers are generally already strong at, having plenty of feet on the telco street).
- Structural change insight (where they’re weak, so they hire us).
- Business model (a challenge for vendors and operators with a technology- or engineering-centric culture).
- People and processes (an even greater challenge, with telco culture self-identified as a key issue in our surveys).
- End-user products and services (an opportunity given the slow evolution of core voice and messaging products).
- Technology and networks (no point defining things you can’t deliver).
The inter-relationship of these is shown below:
What we’ve done is put some of the key issues onto this framework. Your market situation may vary from this example developed for one global equipment vendor, in which case you’ll need to
hire us too adapt it to your circumstances.
|High Level Telco Issues||Critical Telco 2.0 Issues (not sufficiently addressed today by the market)||Description and examples of vendor response, capability required, or issue to address|
|Market Change||Reduce capex and opex through shared infrastructure and partnership||Tower/right-of-way, RAN and core network sharing; elimination of “gold plating” telecoms solutions; streamlining or eliminating business processes; outsourcing. Enable peering of voice and data to reduce interconnect costs (e.g. all cablecos, loop unbundlers).|
|Solve Broadband Incentive Problem||Supporting different pricing mechanisms; Enable alternative means of packaging up devices, service and connectivity; provide finer-grained provisioning models; enable P2P and content delivery networks; move traffic off-net (media-based distribution, personal area networks, caches); diversify into other forms of communications (e.g. QR barcodes); help segment and target user base based on actual usage patterns.|
|Focus on Telco strengths vs. Internet portals||Provide integration of (third party) service with telco provisioning, payment, logistics, retail, support, CRM, biz intelligence, SDPs and networks.|
|Structural industry change||Vertical to horizontal/modular structure||Only create technical vertical integration where necessary (rather than where possible); model benefits/costs of vertical integration; understand limits of Internet Protocol abstraction and help applications work around them; open APIs to all components allowing for more fluid combinations of services, devices and connectivity (and payments)|
|Consolidation of public sector purchasing; growth of muni/community networks||Move past “divide and conquer” method of selling connectivity in small lots to individual users and businesses (starting with large-scale public sector demand aggregation); long-term contracts to supply basic local access.|
|Investor preference for low-volatility utility returns||For example, (BT) Openreach’s re-rating as a utility has driven up BT’s stock price. Work with different kinds of investors on access infrastructure supply contracts; spread risk to more partners (e.g. property owners, local government, pension funds, entrepreneurs); emulate infrastructure capex models from outside telecom (eg. PFI, public transport); share infrastructure and consider open access models.|
|Business models||New revenue sources||Who could pay – Users, Taxpayers, Employers, or Advertisers/Merchants? Broaden funding base for network and services. Enable advertising. Extend models from short code SMS, freephone and premium telephony to IP services.|
|Enable B2B payments and flows||Who could get paid – Content providers, application providers, device/OS makers, infrastructure services, connectivity providers? Enable flows between them (plus auditing, accounting, authentication, sign-up, reporting, etc.)|
|People and processes||Market-centric organisation structure||Different products and messages for different Telco 2.0 strategies (Pipe, Platform, Protection). Operators need to restructure their organisations and product portfolios. Vendors need product pipeline and sales/marketing targeted to needs of horizontalised customers; different (aligned) messages for CMO, CIO and CTO communities.|
|Product and pipeline management||Metrics, data and tools to enable strategically-aligned product and project pipeline management (e.g. QFD, AHP/ANP and other decision science tools beyond ROI and BOGSAT). “Telco 1.0” solutions may still pass through for more traditional customers and markets, but the product portfolio should be managed and aligned with each operator’s strategic transformation goals. Vendors likewise need to manage strategic change by not channelling all investment into sustaining innovation for Telco 1.0 business models.|
|Cultural and change management||A major blocker for telcos, where this will be addressed as part of organisation redesign. Vendors can offer customer education; training; consulting; evangelism; process re-design; org re-design; industry thought leadership; investor education. All need to learn “Enterprise 2.0” agility — internal blogs, wikis, IM, tagging, search, open source tools, etc.|
|End-user products and services||Value-added capability definition and development||Big opportunity in core telecoms business (for existing players and those in adjacent markets). Vendors need to create a “2.0” voice and messaging services vision; enhanced presence, availability capabilities. Promote social networking and self-expression services vision which integrates legacy voice/messaging products into those for win-win between operators and portals.|
|Partnership and value network creation||Vendor and operators can offer partner networks of technology, distribution and value-added services. Goal is to lower their integration and business development costs; provide certification schemes and interoperability labs; developer and partner programmes.|
As an industry, how are we currently scoring up on these issues? Here’s our first cut, based on our own assessment:
|High Level Issues||Issues to address||Rating (*=poor to *****=excellent)||Notes|
|Market Change||Reduce capex and opex through shared infrastructure and partnership||***||Considerable progress in network sharing and unbundling, although plenty of wasteful capex and duplicative competing access infrastructure in areas that are probably natural monopolies.|
|Solve the Broadband Incentive Problem||**||A long way to go, with most effort being expended on short-term traffic shaping and pricing fixes that don’t offer long-term solutions.|
|Focus on Telco strengths vs. Internet portals||**||Few operators have managed to create a win-win with Internet partners that truly enagage the best of each others’ assets and keep telcos “in the loop”. Too much price competition, too little focus on quality and service.|
|Structural industry change||Vertical to horizontal/modular structure||**||Some operators have undergone structural transformation, and have set their retail operations free. Virtually none, though, manage to operate outside of their own network footprint, or offer comprehensive platform APIs.|
|Consolidation of public sector purchasing; growth of \muni/community networks||**||Early days still for this one, but the constructive engagement of the public sector is only really advanced in a few northern European countries and a very select few US states and cities.|
|Investor preference for low-volatility utility returns||*||You can tell from all the IPTV projects that everyone still thinks that a single vertically integrated and high-risk content aggregation and distribution strategy is a good way to pay for a network. Likely to result in a lot of tears and executives being sent off to re-education camps by angry investors.|
|Business models||New revenue sources||**||Some early forays into payments (Japan – DoCoMo, Africa – M-Pesa), advertising (Europe – Blyk), social networking (USA – Helio), IT services (BT), but most still heavily dependent on traditional access and services revenues alone.|
|Enable B2B payments and flows||*||Very poor, given that billing and settlement are what telcos do.|
|People and processes||Market-centric organisation structure||***||Some serious efforts to restructure organisations and streamline processes. Still a long way to go in engineering cost out of the business, and too much effort expended on optimising business processes that could probably be automated or eliminated entirely. Much inspiration remains to be drawn from airlines, retailers, and other utilities.|
|Product and pipeline management||*||We’ve seen little if any evidence of operators or vendors having a serious go at formalising Telco 2.0-like criteria into their resource allocation process. We’re not talking PhD-level complexity here, just simple things like preferring features that deepen customer intimacy (automatically add directory inquiry lookups into your address book) over fancy new content and multimedia services.|
|Cultural and change management||**||A few are ahead of the pack, but most operators remain deeply conservative organisations struggling to deal with change at the delivery technology level, let alone for structural issues. Even leaders like BT took a near-death fright to make them take change seriously.|
|End-user products and services||Value-added capability definition and development||**||Massive gap between what users want from their communications tools, and what Bell-style telephony and even SMS are delivering. Danger is that Internet players will fill in all the group, social, asynchronous, rich media communications, and seize much core revenue in the process.|
|Partnership and value network creation||**||Lots of “manual” partnerships with the biggest Internet search companies and portals, and a few examples (notably i-mode) of working to extend the partner relationships down towards the “long tail”. Most of the gatekeeping of bizdev remains to be eliminated, the sign-up of partners automated, and the fragmentation of wholesale access fixed.|
|Technology and Networks||Develop platforms more tightly linked to specific content and services||**||Several operators have started to specialise in supporting certain classes of applications or content (e.g. Sprint SAWS for enterprise customers, multiple mobile TV initiatives for consumers). However, few have created a complete suite of identity management, provisioning, billing and support capabilities to rapidly and easily add in third party services or insert 3rd party capabilities into the service delivery value chain (e.g. content aggregation, recommendations, reputation, directories).|
|Develop simplified QoS, congestion management and partner APIs||*||A few operators such as BT have done extensive research on congestion pricing, but to date the wholesale market is stuck with a just two basic models: pipe capacity based on peak throughput (but unrelated to volume), and volume-based metered usage. Partner APIs and platforms are often highly complex (e.g. IMS, JAIN) compared to Web protocols (e.g. REST).|
Do let us know your thoughts and feedback in the comments below.
We’ll take a look at the details of business model design next.