Imperatives

Choosing the Right Path for the Operators ’ Market
Homes are ignoring their fixed lines in preference of mobile devices. The TV viewing audience is switching their favor to free Digital Terrestrial TV, free Digital Satellite TV, TV on the Wii or the PC. On the upside, broadband subscriptions are increasing, but subscriber growth far exceeds the uptake of operators’ Web-based content services. Mobile subscribers are canceling and are choosing PAYG (Pay-As-You-Go) options. Therefore, average revenue per user is decreasing and churn is increasing. This trend is being caused by consumers looking for lower cost media and telephony.

To make matters worse, the consumer usability expectation is becoming far more demanding, and devices and services that are perceived as difficult to use are simply not selling.

Operators are now trying to capitalize on previous innovation investments in both content and telephony delivery. This is being done through alteration of the pricing points and more sophisticated marketing and re-branding. Resource is being directed at getting existing projects off the drawing board and into the field, rather than looking for better or new projects.

Each operator is facing the decision to go down one of three different routes:

• Dumb pipe vendor: Competing as a commodity vendor of bandwidth by dropping any content or device vendor pretensions. Operators that do this are simply competing via price per megabyte.
• Content vendor: Focusing on the content offering via acquisition of exclusive rights and small minimum guaranteed returns (MGRs) and positioning themselves as a major player in the content consumption market. Operators that follow this route must focus on both traditional media differentiators and device features to enhance their content offering.
• Platform vendor: Operators following this route will be competing as vendors of an open or closed platform for both content and feature innovation. Focus will be moved to having the right cost, the right quality, and the right features on their platform via the publication and opening of standards and production tools.

By ‘right quality’, we mean tailored to each service. The former telecommunication standards of total quality and availability aren’t the benchmark anymore in our online world. Operators must not focus on quality when consumers don’t see it as necessary.

If the operator chooses not to become a dumb pipe vendor then they must find new markets with their content and feature offering, which means changing the branding to make the old innovations fit the new demographic. They must compete with media, big Internet players, small software application vendors and even manufacturers for content production and broadcast.

Operators can differentiate themselves by providing a convergent offering, with strong synergies between the consumer devices and screens (TV, PC, mobile handset).

The mobile device is the ultimate tool for the introduction of personalization features. The potential for targeted advertizing to these devices is massive. Operators who have a mobile offering are realizing this. Strategic partnerships with mobile search engine providers (for example Vodafone + Google, Verizon + Microsoft), mobile content distributors, and mobile advertizement agencies are being established.

Pilots have been launched by some telecom operators; for example, France Telecom has positioned itself in the midst of the identity and federation fray. If successful this will grow the role of the telecom provider, turning it into a trusted friend rather than service provider.

The development of e-business at all levels is so established that it does not enter into an analysis of the future. However, it is only when your Internet pipe bursts that small- and medium-sized businesses are realising the importance of being online. Built on the back of a high quality of service Internet connection, some European telco operators are seeking to differentiate themselves by extending their offering to other business services, such as email, hosting, application management, and professional services. It is worth noting that this attempt to provide added value is already challenged by online providers, such as Zoho and Google, which are both offering free or white labeled Web 2.0 services.

Choosing the Right Answer to the Economic Downturn
With the global recession, consumers are becoming increasingly price sensitive. Therefore, operators must think of how they can best serve their customer’s media and bandwidth needs, when that same consumer has less disposable income.

It is difficult to predict which route to ensure survival will fare best at these times:

• A strongly-branded, leading technical approach.
• A strongly-branded, quality service approach linked to consumer-oriented service.
• Low-cost, no-frills and volume-based consumer commodity
• ‘White label’ wholesale or B2B approach.
• Consolidation and domination.

An option that is open for the telcos is to use the currently low valuation of publicly traded companies to re-shape or strengthen some aspects of its strategic business portfolio. This would be through mergers or acquisitions, instead of building such fields of operation itself.

Due to the global recession, telcos must engage in a second wave of outsourcing and off-shoring service deals for elements such as Business Process Outsourcing (BPO), network, desktop management, and billing. Simply put, off-shoring will allow them to lower their costs. However, this should not encompass business processes, as the risk on quality is high.

Rather than developing a new portfolio of offers and capabilities, they will adopt a ‘making more of what we’ve got’ approach, in order to simply focus on cash flow positions (although to a lesser extent in France).

Business trends

Going Down the Chosen Route
In the short term, you will see operators deciding on their direction and then altering their organization to focus on this direction. As the recession hits, winning strategies are likely to be commercially driven:

• Conserving cash by canceling new initiatives and brutally driving down costs on existing operations
• Selectively targeting competitors through head-hunting staff, exclusive tie-ups, and legal challenges
• Limiting spending on advertizing to key market groups and providing more commercial deals to retain customers.

Some telecommunications players have decided that they are dumb pipe vendors and look to provide a commodity service. Some are deciding to compete as content aggregators (notably Virgin Media and Orange). The important thing is that they are focusing. This trend will be executed via rebranding, acquisition, and consolidation. This role definition will be happening up until 2012.

Slowing Investments in Next Generation Networks
Operators that have started down the IP Multimedia Subsystem (IMS) road are now realizing the full cost. They are also facing a tightening of the consumer’s purse-strings, and competition from Internet technologies, making it difficult to leverage the new features that this investment enables. This will see some operators halting investment.

This should only be a short-term tendency. The business case for Next Generation Networks (NGNs) stands firm in the mid-term, as they look to significantly reduce operational expenditure.

New Ways of Delivering Content
In 2006, we saw operators investing in Web-based video content delivery platforms. Many of these experiments have failed mainly due to lack of promotion and investment. However, organizations such as the BBC in the UK and Uitzendinggemist in the Netherlands have shown that this is a very successful delivery mechanism. Unlike public or channel vendors, operators are uniquely tooled to make this style of service a success. Telecom operators that decide to continue to compete as content aggregators will be either beefing up their existing Web content delivery platforms or will be investing in new streaming platforms.

For content delivery we also saw Joost, a popular peer-to-peer media sharing application, change from a successful model to a failing model. This was due to many factors, but mainly consumer mistrust of peer-topeer, operator throttling, inadequate content, and an ever-changing PC environment which led to many technical issues. However, the product design is great and we will see operators emulating this with their own products but not until 2010 when they have implemented their changes.

Program brand is far stronger than channel brand, and we will see content producers attempting to find new ways to leverage revenue from programs. This will also be reflected in device design and telecommunication content offering, which should enable the replacement of broadcasters scheduling by user scheduling. The demise of channels will be played 2018 with the state-run channels being the last to disappear.

New cameras, production software and computers are massively decreasing the cost of content production. Consumer expectation of content quality is also falling. These two trends will unite to create an environment where the cost of content rights is massively reduced. To compete, studios will significantly lower their MGRs and increase the accessibility of the content back catalogue. This will make telco content offering cheaper.

Always More Interaction and Personali zation
Interaction is the Holy Grail, and all the platforms have tried different ways to incite users to interact. Consumers don’t want clunky user interfaces or tedious form filling. Now most Digital Terrestrial Television boxes no longer provide interaction features and nearly all the operators and channels are dropping it. This does not mean that content interaction is not possible. Nintendo, with the unexpected success of the Wii and DS (with a whole new set of demographics), have shown that consumers are ready for interaction. We will see an explosion in proprietary media consoles (a cross between Apple TV and a games console) all with high-end stylish design. If successful, this will lead to a reduction in content revenue for the operator. Note that with the commercial failure of the PS3 that the home media gateway is still up for grabs.

Web 2.0 concept technologies will continue to play a big part in the evolution of the sector, helping to increase consumer level expectation, engagement and contribution. The explosion in the quantity of user-generated content has only just begun. Currently 35% of Internet content comes from users. Enterprises will therefore extend their engagement with these users to facilitate knowledge transfer and collaboration, both internally and externally, with suppliers and customers alike.

The Explosion of Mobile Internet
Smartphone’s market expansion increased by over 25% in 2008 and will continue to grow significantly in 2009. While Apple’s iPhone has not been as popular as first predicted, the new pricing points and alterations to the platform have generated an even bigger splash than expected, reproducing the success of the iPod model— a user-friendly device coupled with an application platform (the AppStore).

This disruptive event has pushed other manufacturers such as Nokia, Motorola and HTC, as well as Microsoft (with its massive push for new mobile operating system) to respond with iPhone killers or new mobile concepts such as the netbook, thus preparing the explosion of mobile Internet usage. Most noticeably, the first Google phone has been released with T-Mobile US based on Android—Google’s platform to create sophisticated smartphones and to extend its digital advertizing business into new areas. New releases, mainly with HTC, are expected all around Europe for the first half of 2009.

The underlying trend is that both business users and consumers are desperate for devices that are stylish and easy to use, and are willing to pay for it. Telcos will either be reinforcing their product groups or will be partnering with organizations that have a proven track record.

The Battle on User Identity
In a short-term attempt to retain consumers, we will see operators introducing single sign-on solutions, bringing all their online, media and telco products under a single customer logon. We will also see operators moderating these identities with other vendors such as banks or retailers. However, they are competing against Microsoft, Google, governments, and numerous open Initiatives. Ultimately, the telcos will not be the custodian of a user’s identity. We can expect to see this struggle continuing for many years.

Device Innovation
2010 will be the year of device innovation. We can expect to see almost every consumer device equipped with wireless Internet connectivity. With the lower cost of computing, we will also see intelligence and connectivity in the most mundane of objects. Demand for network bandwidth will massively increase, putting telcos and Internet Service Providers in a great position.

Emerging Nations —A New Source of Growth
Telecom companies are seizing the opportunities to enter new markets and offer products to a large group of consumers, for example Vodafone in Asia, Orange in Africa. Some of the global players (namely Vodafone and Telefonica) have even had positive business results in these markets. However, they will need to look at providing cheap products that provide value, and micro business will be an important factor in this.

The Power of Green
Customers want more and more products and services using clean energy. Over the next two years we will see legislation to enforce the European Power Directive introduced across Europe. This will have a massive impact on consumer devices. Operators that continue to offer high-power consumer devices will see themselves in court. The potential cost of replacing consumer devices will see some operators tip toward the dumb pipe vendor model. Up until 2012, we will either see a change in expenditure on device redesign and replacement, or a change in business focus altogether.

The Future Workforce
The green agenda and consumer quality-of-life expectations will see increased working from home. This will lead to greater demand for fast, reliable, secure networking.

The future workforce will be entirely virtual, and more akin to teenagers playing Warcraft than businessmen meeting in offices. New teams, opportunities, and products will be constructed and exploited within hours rather than weeks. The Generation Y workforce—whose members have not yet hit 30—are also telecom consumers. Their success means more demand on the network, and more demand on the identity, security, and content features of that network. There is an increased awareness of personal and family security. Virtual Worlds are becoming very popular in the pre-adolescent and teen
demographics. Internet companies are finding new ways to open new markets and extract revenue from previously untapped demographics.

Data analysis provides the ability to predict individual or group behavior. Who knows which Websites you visit, how often and how much data you exchanged? Who knows what TV channels and shows you watch? Who knows when you are on MSN, Skype, rapidshare, or BitTorrent? Who knows which adverts you look at?

The telcos knows all this and more, and there are a number of projects being initiated to investigate the possibilities of deriving revenue from exploitation of this data power. While we can expect to see legislation to protect consumers from this type of behavior, we can also expect to see government Initiatives to have access to this data.

So, if the telecoms company is not just a dumb pipe vendor, what has it really got? The answer is simple—they have the consumer’s identity information and their trust. This is especially noticeable where telcos are the previous state incumbent. We will see some telcos lead innovation to exploit this rich resource rather than investing heavily in old-fashioned telephony features.

Impact technologies

Feature Delivery
With shorter product lifecycles and increasing competition, the need to deliver new products more quickly will benefit greatly from product and service assembly solutions.

Telco innovation has always been stifled by the high-quality requirement on services and devices. To address this, the introduction of Continuous Integration (CI) technologies and techniques will become more popular.

Network Evolution and Infrastructure
As more and more entertainment is offered over the Internet, the importance that the consumer places on the TV offering will diminish. The global recession will mean that in the short term it is likely that infrastructure investment will be cut and will only happen where cost can be recovered from operational expenditure. Longer-term investment must primarily focus on providing higher bandwidth, rather than complex telephony or TV features.

Along with the growth of widescreen cell phones, mobile TV and mobile video is becoming a reality. In 2009, the launch of French Télévision Mobile Personelle will offer 16 interactive digital broadcasting channels in DVB-H standard to 30% of the French population. The service will compete with Unicast TV available on 3G network, offering better image quality, better signal availability and less bandwidth use.

Content creation and consumption is driving demand on bandwidth up and up such that video will make IP traffic grow by 400% in the next four years.

Home users are gathering vast amounts of stored data. In the old days, when a user’s data was a few gigabytes it was OK, but now it’s in the hundreds of gigabytes, and is a big problem. Users are looking for safe solutions to store this data. New devices and telco services, in the form of Cloud Computing, will be created for this need. Technologies such as storage area networks (SANs) will enter the mainstream and Apple’s MobileMe is an early example of this.

The cost of streaming infrastructure is falling with open source real-time steaming protocol (RTSP) solutions now available. These are also being integrated with mainstream digital rights management (DRM) solutions, providing a low-cost alternative to the Microsoft platform.

WiMAX is quite simply the last mile of a wired network. But guess what—it’s that last mile that costs the real money. To dig up a road costs €150 a meter. If you can put a single WiMAX transmitter into a town you can serve thousands of homes with just a single trench. Countries that have missed out on cabling are now using WiMAX to get their population online. This technology has massive implications on the business model—with WiMAX, every member of the home is a potential customer rather than just the home owner.

Devices and Interface
Development of smartphones, electronic newspapers and net-books give consumers new devices to satisfy their needs and new opportunities for the telcos to sell bandwidth.

The iPhone is paving the way for more intuitive and easy interfacing with telecom devices and appliances. Speech Recognition, Tactile Navigation, Handwriting Recognition, and, in the future, touch interfaces shall completely change the way we interact with devices and, at the same time, help create totally new devices and the necessary software to interact with them.

Vista had a slow launch with consumers reluctant to change operating systems, instead feeling happier to buy a new computer than upgrade software. This behavior is also reflected in the emergence of low-cost devices with high computational power. The slow uptake of Vista, with its features focused on the delivery of content, is likely to be slowing the uptake of content-driven services, such as video download.

In 2010, we will see the launch of highly intelligent toys, as new chips currently in prototype and field trials are about to hit the toy manufacturers’ work bench. These new WiFi-enabled toys will unlock new ways to consume bandwidth and content as they interact over and consume content from the Internet.

The silicon chip is nearing the end of its life and prototype, longer-life gallium nitride (GaN) chips are now working in R&D labs. These chips out-perform silicon at far lower power consumption. The intelligence and storage in solidstate small devices is expected to increase by several orders of magnitude. This can only increase the demand for network and content consumption.

Advertizement
Digital ad insertion on TV, mobile, and the Internet, is seen as a big feature and could be a whole new revenue stream for the telcos. New codecs play-out equipment and targeting technologies are being investigated.

Some of the technologies driving this are new, free-tracking and audiencemeasurement tools such as Google analytics. The insertion of mobile specific adverts into content and the advent of streaming to mobile allow digital advertizements to be inserted within video and audio streams.

Customer Relationship Management and Billing
Business Intelligence will play a key part in building brand loyalty and customer retention. In particular, understanding usage patterns is key as contracts are replaced by payment on demand (pre-pay). Customer analytics will become increasingly important in identifying patterns and allowing targeting on behavior for advertizement.

In Western Europe, CRM is key for customer retention but is currently stifling innovation through linking customers and products together too tightly.

Ensuring that a high level of service is always available will require predictive analytics and dashboards to predict the likely variation in demand and warn of any impending problems—particularly important for high-volume service where networks are regularly stressed.

A consistent view of information across all the business’s data sources by way of Master Data Management will help multi-pay businesses in the move toward unified billing with accurate and timely bills.

Near Field Communication
Near Field Communication (NFC) is a technology with the potential to substantially ease the handling of traditional bank, credit, insurance, access, loyalty, and any other personalized plastic cards. By itself, NFC only enables the secured wireless transmission of data in the range of up to a few centimeters, but in combination with an NFC-enabled cell phone it provides swift and easy access to the information stored in one’s electronic wallet. Once adopted and rolled out by the industry, NFC-enabled electronic wallets will allow for contactless payments in stores, mobile ticketing in public transportation, personalized and localized information services, navigation, couponing, targeted advertizing, and many more. This way, the cell phone has the chance to furthermore evolve into the primary personalized device of the Web Native’s generation. Mobile network operators should not miss the right moment to position themselves in a value chain, which is set to grow for the decades to come.

In 2008, we have witnessed a series of NFC pilots, for example Payez Mobile (France), Payter (NL), Oyster Card (UK), Touch and Travel (Germany). These are sound signs of industry interest, but some important questions are still to be answered. For example, security requirements of the financial sector and of telecom companies are still not close to converging, which leads to competing technical approaches for an overall solution architecture. Once more, standardization is the key to unlocking the potentials of new technology in today’s worldwide markets. The GSM Association has taken the lead having issued its version 2.0 of the Single Wire Protocol specification in late November 2008 and started the next round in a race, which is going to last for years to come.