Telecommunication Companies are still struggling with Paradigm Shift

t seems like every telecoms-related conference I’ve been to this year – and I know it’s only March, but bear with me – has had a recurring theme that goes something like this: telcos really have no idea how much their industry is changing.

This year’s Mobile Backhaul Asia conference in Bangkok has been no exception.

Speakers advised delegates first thing Day 1 that while telco executives aren't completely oblivious to the paradigm shifts going on around them – brought on by smartphones, social media, etc – there’s a huge difference between being aware of change and understanding just what that means.

For example, it’s well understood that OTT players are challenging the telecoms status quo, but many telcos don’t fully appreciate just what a big deal this is, said Mike McConnell, CTO and executive solution consultant for Huawei Technologies.

“I really don’t think people fully understand this, even though they say they do,” McConnell said in his morning keynote. “It comes down to how [OTT players] go to market and how different it is from the telco model.”

For OTT players like Facebook, Google and Skype, the key difference is that –unlike telcos – their service is not the product, but the user base. “They offer the service free and grow their user base any way they can. They build their population, and that’s the product, which they sell to marketers. Telcos don't do that – they still want to charge for everything they put in front of their customers. It's very difficult to make that work when you compete against the OTT model.”

Another example from McConnell of underestimating current trends: the well-cited stat that mobile devices are replacing PCs as the Internet connectivity terminal of choice. “It’s critical to understand what that really means,” he said.

For a start, many new OTT services – such as Foursquare – are developed specifically with smartphones and tablets in mind, not PCs (not even laptops), he said.

Also, mobile broadband networks and hot spots will have a significant impact on traditional cash cow of roaming business models, McConnell added. “When I travel, I can get onto a Wi-Fi hotspot and do 98% of what I need to do without using voice at all, and when I do need voice I can use VoIP.”

Gian Paolo Balboni, head of innovation trends at Telecom Italia, also stressed the importance of fully understanding the current trends driving the mobile data business – from smartphone and tablet usage to OTT content.

Take tablets, for example. “Tablets consume up to nine times as much data as smartphones, but over 90% of tablet data consumption is taking place on Wi-Fi, not the mobile network,” Balboni said in his morning keynote. “Wi-Fi is an important factor that we need to understand better.”

Bonus takeaway from Day 1: mobile backhaul will be as heterogeneous as the access network.

Industry players talk much these days of small cells (including Wi-Fi) as an inevitable feature of LTE, and the challenges of operating such a heterogeneous network. But the same will apply to backhaul as well.

While fiber is often talked up as the ideal backhaul link for next-gen mobile, Dirk Wolter, director of mobility architecture for APAC, China and Japan at Cisco Systems, pointed out that operators will likely utilize a mix of backhaul solutions – fiber, microwave (point-to-point and point-to-multipoint), Ethernet, Wi-Fi mesh and (for operators with fixed-line assets as well) xDSL and PON.

Huawei’s McConnell agreed, but added that LTE itself will also serve as a backhaul technology for mobile hotspots.

Ran Avital, VP of strategic and product marketing at Ceragon Networks, pointed out that while there are multiple tech choices for mobile backhaul, it’s important to understand the differences between them in terms of opex, cost, form factors, capacity, NLOS support and service predictability.

Apple's Grass Root Enterprise Infiltration

What we see is an important, and so-far overlooked, new management application targeted at institutional and enterprise customers, the Apple Configurator. This app provides a critical link in the Apple ecosystem for enterprise IT organizations, Mobile Device Management (MDM) providers, ISVs and VARs that allows enterprises to significantly improve and simplify the cost and complexity of managing iOS devices. Basically, the Configurator allows the configuration of an enterprise-standard iOS device/app image, then allows/enables that image to be deployed across multiple iOS devices. Previously, users and enterprises have had to manage multiple iTunes accounts in order to manage multiple iOS applications and content, depending through which account the apps and content were acquired. Such a management approach becomes onerous as the number of devices grows beyond even a few.

Apple Configurator allows improved simplicity in this regard. According to Apple, it can manage everything about an iPhone or an iPad, iPad, including apps, accounts, and content. Enterprise IT organizations, for example, can now configure an enterprise iPad image once, deploy it across enterprise and individually-owned devices, and keep it agnostic of/parallel to personal accounts on those devices.

The net impact for iOS users, developers, services providers, and enterprise IT shops is an opportunity to simplify and standardized enterprise management and use of iPads, iPhones and any iOS device. We see this as enabling an even faster- and farther-growing Apple grassroots enterprise presence and power, far beyond what is enabled by iPhones and iPads themselves. And it may strengthen movement by enterprise IT groups toward embracing iOS devices at a greater breadth and pace – eventually and effectively shifting Apple’s own non-enterprise-IT stance as well.

Why is it Happening? The Apple Configurator has been a capability missing from, and increasingly needed by, Apple’s ecosystem.

Apple maintains a laser-like focus on the user experience and on consumer sales. To this end, they have built a hyper-competent content and device ecosystem. This in turn has allowed Apple to develop a highly-curated-but-closed ecosystem. Together, the focus and the ecosystem have yielded premium pricing and market leadership in tablet and smartphone spaces.

Apple has also studiously avoided enterprise IT. Steve Jobs himself regularly stated that he did not want Apple to be, or become, an enterprise IT provider, preferring to focus on more creative and new types of devices, content, and services that enabled consumer/end users.

However, Apple is a victim of its own success when it comes to the enterprise. We’re starting to see more frequent orders for thousands of iPads coming in from enterprises worldwide. We see more and more pressure from enterprise business app and service providers to integrate their offering with iPads and iPhones. And the continued blurring of user device/business device removes functional and managerial boundaries between the consumer and the commercial environments – something that Saugatuck has been researching for clients for several years now. (Read: “Growing Pains: Consumerization Is The Heart of Fundamental IT Change,” and “Consumerization of IT Raises User Expectations, Creating Vendor Opportunities”)

Apple’s approach of decoupling management capabilities, network infrastructure, devices, applications, content, and delivery has allowed it to focus on its own core competencies: developing new user functionality, fostering its developer ecosystem, and allowing others to fill the demand of users and organizations by building within its ecosystem. Already there exist a multitude of MDM providers that operate within this niche, and we fully expect that more will begin to work within this space. On top of this, many 3rd-party ISVs and SIs are turning to the iOS SDK to provide value-added services to enterprise customers currently using solutions from larger vendors like SAP and IBM.

So despite is proclaimed “non-enterprise” stance, Apple has made very successful inroads into the enterprise market from the bottom up – driven by consumer demand, encouraged by broad ISV/developer interest, and capitalizing on increasing enterprise policies that enable and encourage “bring your own device” (BYOD) (Read: “Mobilization in the Cloud: Facing Bring Your Own Device Policies in the Enterprise”). (source: Alax Bakker - information-management.com)

Optimism in Mobile World Congress: Mutually Beneficial Cooperation between OTT and Cellular Operators

Let's get one thing straight. There is no recession in the mobile telecommunications industry.

Anyone present at Mobile World Congress in Barcelona last week for the annual tapas and telephone fest will vouch that it was the most energetic, positive and crowded event in years, attracting a mass of new peripheral players that are finally seeing that connectedness is everything.

The Insider cannot recall a time when so many different industries were represented in keynote sessions, on the exhibition floor and in cross-industry panel discussions. On the surface it was all positive, but some of it was almost too upbeat. Maybe it was the bright sunshine, copious amounts of sangria or the hallucinatory effect of coffee-con-leche on tap, but the love-fest involving OTT players and operators seemed, at times, almost too good to be true.

Facebook was well represented not only in the keynotes but also in the TM Forum led “operators as intelligent partners” stream. Don’t let the tongue-in-cheek title fool you, this was where the likes of Expedia.com and Facebook came straight out and said they are not only actively seeking out ways of cooperating with operators, they felt it essential for their long-term growth, nay, existence.

Flanked by senior representatives from AT&T, Teliasonera and Telus, Vaughan Smith, VP of Mobile Partnering at Facebook outlined that CSPs had skill sets and reach that his company did not wish to emulate and, particularly in the area of billing, wanted to work closely with them, happy to share the revenues. His realistic view was confirmed by the fact that a large percentage of mobile Facebook users do not even have bank accounts, let alone credit cards with which to pay for goods and services online.

Facebook’s future revenue growth will come from online commerce and if customers are unable to pay, the whole exercise becomes academic. However, by utilizing the existing billing arrangements operators have with their pre-paid community, the payment issue could be circumvented. He gave examples of the dramatic uptake of Spotify sales once they launched on Facebook, and how that could be emulated by almost any digital services provider.

His views were also echoed by his CTO, Brett Taylor, who announced in his keynote address that the company is participating in “a number of industry wide initiatives” intended to support the development of the mobile web, focusing on technology standards and payment enabling.

With the objective of reducing online payment verification from eight steps to one, he announced a partnership with “operators around the world to improve both the user and the developer experience of operator billing.” This work will remove the need for the SMS verification step for the “vast majority” of customers, while providing developers with a single SDK to get global reach with “very, very simple” technical verification.

“That way, payments on the mobile web can be what it should be – a single step to confirm the purchase,” he concluded. Operators working with Facebook on streamlined billing are AT&T, Deutsche Telekom, Orange, Telefónica, T-Mobile USA, Verizon, Vodafone, KDDI and Softbank.

Jeff Warren from Expedia, now the world’s largest travel sales company, said the need to work with mobile operators hinged around connectivity for travelers wherever they are. The whole nature of the business is travel, much of it offshore, but to provide the best service Expedia needs to be in contact with its customers wherever they are to provide the latest updates, cancellations, alternative travel, etc. but the nature and cost of roaming means that most of their customers switch off their phones as soon as they leave their home country and the whole value proposal is lost.
He wants to see how his company can work with operators to make roaming, even specifically for Expedia customers if possible, a seamless and cost-effective service.

David Gurrola from Orange's Consumer Mobile Business, in his presentation said that increasingly complex value chains meant the way operators partner with other organizations has “completely changed”, with it being “much more about bringing together ecosystems.”

Gurrola added that operators will need to become more flexible and more willing to compromise with partners in the future, as well as develop a clear understanding of the value partners can bring. “Operators must go deeper, overcome risk aversion, and act quickly in to changing roles within the partnerships,” he said.

Sounds like a future TM Forum ‘agile business case study!’ (source: telecomasia.net - Poulos)

NTT Com launched Fiber Optic Services in Indonesia

Japan's NTT Com has launched its own fiber network in Indonesia, through its local subsidiary.

NTT Indonesia has gone live with a fiber service in the East Jakarta Industrial Park, the company announced today.

The company revealed plans to build and operate fiber networks in additional locations in Indonesia in the near future, including more industrial parks and office buildings.

NTT Indonesia received a fixed-line operating license from the Indonesian government in December 2011, becoming the first foreign carrier to receive clearance to operate an end-to-end fiber network.

In a statement, NTT Com said that demand for high-speed network services among Indonesian enterprises is growing as more local companies look to expand internationally.

NTT Com has been expanding its presence and capacity in the APAC region. Last month, the company revealed it had agreed to collaborate with the Lao National Internet Center to provide Laotian ISPs with access to its Tier-1 network.

In November, NTT Com announced it had committed to upgrading its PC-1 cross-pacific cable to true 100G by mid-2013, more than tripling the cable's capacity to 10Tbps. (source: telecomasia.net - Dylan Bushell-Embing)

VoIP and IM high data usage growth in 2011

Mobile operators should respond to rapid growth in over-the-top voice-over-IP (VoIP) and instant messaging (IM) with clever price plans based on application usage, a senior Allot Communications executive says.

Andrei Elefant, Allot’s vice president of marketing and product management, says growth of 114% in VoIP and IM traffic in the back half of 2011 presents as many opportunities as threats to mobile operators.

“Intelligent, application-based data pricing is the way forward for operators, allowing them to maximize data revenues based on its true value to subscribers,” Elefant notes.

While VoIP and IM were the fastest growing services during 2H11, video streaming remains the dominant service in terms of overall mobile data usage. Video garnered a 42% share of the broader market - compared to 5% for VoIP and IM - after experiencing the second-highest growth of 88% during the period, regular Allot figures reveal.

That growth came at the expense of file sharing, which saw its share of the market fall from 29% in 1H11 to 26% in 2H, and web browsing, which fell from 25% in 1H to 24% in 2H.

Allot notes that app store traffic is now broadly on-par with VoIP and IM, with Apple generating 79% of traffic during the period to maintain its dominance of the sector. However, the figures show that Apple’s growth of 61% pales in comparison to Android Marketplace, which grew by 232% in 2H11 to give the firm an 18% share of overall traffic.

The figures are revealed in Allot’s seventh report on global mobile broadband usage, which is based on anonymous data from operators with a combined subscriber base of 250 million. (source: telecomasia.net)

It is the End of the Line for TELCOs

The telecom industry has reached its peak. This is it. Look around you. Whatever you are doing in telecom, however you are making money in the field, it isn’t going to get better than this. This industry has acquired its maximum share of the economy. We are the digital railroad business at the height of the railroad barons. The only way now is down. We’ll see maybe one or two more mini-booms, a few more troughs, but the long-term trend has just gone into reverse.

What’s going on? Let’s gather the evidence

The telco voice and messaging business is on the verge of going into meltdown. Since this is where the margins come from, the problem is hard to exaggerate. The drip-drip of articles about declining voice and messaging volume and revenue is becoming a small stream. Even mobile telephony is losing ground in competition to asynchronous messaging. Twitter and Facebook message volumes are exploding, and SMS is beginning to sink. Termination and roaming are endangered species, hunted by packs of voracious regulators. There is no way back. When I started writing Telepocalypse back in 2003, the only thing I got wrong was the timing.

The traditional vendors are dying, and this is disrupting the telco supply chain. Their multi-year cycle times are hopelessly mismatched to the environment. The federated, standards-based, interoperable services game is coming to a close. Huawei is mopping up the bloody remains from the battlefield. Time to pack up. A raft of “internet-time” startups are taking their place, filling in the missing features that decades of neglect of the voice and messaging business have left behind. (You mean I still can’t record and search my calls in 2012? Wow!)

If you can’t join them, beat it

Meanwhile, telcos are launching over-the-top services to gain and retain customers. For example, check out Bobsled from T-Mobile, Jajah from Telefonica, and 050 Plus from NTT. There’s about to be an all-out war to become one of the surviving voice and messaging platforms. (Hint: Telefonica is ahead. Everyone else is playing catch-up.) The Global System for Mobile Associations’ Rich Communication Suite initiative is in intensive care, and relatives are inquiring about local funeral directors. Senior execs say it privately. Nobody wants to alarm the investors by letting them know that those future cash flows aren’t so secure after all. VoLTE and 4G voice is a mess that preserves the worst of GSM telephony, without giving the user any upside, and leaves an open goal for over-the-top alternatives like Skype.

I strongly believe the business model for voice and messaging is about to go into reverse. The value is going to drain out of minutes and messages charged to users. Instead, enterprises will pay for features that make customer contact efficient, effective and secure. Where Facebook has fumbled, others will fill that gap and become fit-for-purpose B2C channels. Voice and messaging won’t just drop to a price of zero. It will go negative. Users will be courted to lodge their identity and presence with new communications and commerce intermediaries, who make money “upstream.” Once the process starts, it will become unstoppable.

Telcos won’t get a chance to deploy the next-generation free phone product unless they act fast.

Video and data: volume without profit

Video is booming, but there’s no money in it for telcos, except for a lucky few who grabbed the sports rights. The cable business model is now being unbolted from its foundations too. The talents of acquisition, bundling and distribution will serve the cable companies for a few more years, but they know the score.

Whether it’s voice, messaging or video, the money chain from application to transmission to infrastructure is breaking down.

Data volumes are soaring, but again telcos have failed to master the brilliant packaging of voice and SMS with internet services. Apps stores aren’t services stores. Costs are out of whack with revenues, because pricing and network policy is managing “bandwidth.” But that is not the real issue. The real issue is how customer experience is linked to contention, and no telco knows how to manage that adequately today. Given high fixed costs and low marginal costs, some player will always want to offer unlimited plans at unprofitable prices. It’s a not-for-profit business keeping iPhones and iPads connected.

So where’s all the money gone?

For sure, Apple is surging. Apple may only have 20 percent of the smartphone volume, but they have a huge share of the profit. This is a fundamental shift in the balance of power in telecoms. All the APIs that really matter are going to be decided in Cupertino. Don’t be deceived by Android’s volumes. There’s no money there — it’s a dollar-destroyer.

Although Apple is the star around which much will orbit in future, Google is growing too, as long as the PC platform holds. And Amazon is showing how it’s hard to fake infrastructure, and nobody is going to challenge them anytime soon.

Telcos aren’t going to be able to divide-and-conquer these platforms. The locus of power has shifted fundamentally. The value creation is outside the network.

It gets worse.

These players may start to aggregate assets and wholesale access to build AppleNet, GoogleGlobe and AmazonRiver to connect merchants to eyeballs and wallets, without any other gatekeepers, such as a telco retail bundle, in the way.

It gets worse.

Telcos as profitable networked cloud services providers? You’ve got to be kidding me.

It gets worse.

Ericsson has positioned itself as what my colleague Dean Bubley refers to as a dominant “under the floor” player. It is potentially a king-maker for telcos, controlling the delivery platform from which their operations have to be run. Networks are just large, distributed supercomputers — and Ericsson is the new IBM. Nobody got fired for choosing them. Their power is ominous for operators.

It gets worse.

Home networks don’t need service providers. You just buy a box and plug it in. Street-level networks don’t either — you can build a simple resilient mesh. Nor do town networks that join the kids with their school. We fundamentally don’t need communications service providers to manage data transmission. As long as we have a means to fund infrastructure, just as we manage with roads, we can do it for ourselves.

This is the beginning of the end of the Information Superrailroad, where all the bits are scarce and billable. Broadband ISP service is a branch line to nowhere.

Unlicensed wireless is the automobile, and local open fibers are the roads. It doesn’t carry very much very far right now, but it will. And with it, the fate of the telecom industry as constituted today is sealed. Like with the railroads, telcos will carry ever more traffic, and will protect themselves with political power. But their heyday is over, and a new disruptive model has emerged.

Welcome to the real Information Superhighway. I hope you like your iCar.

Martin Geddes is founder of Martin Geddes Consulting Ltd. He runs public workshops on voice innovation and strategy. This article was originally published on Geddes’ site, Future of Communications.

Korea Telecom Reviewing Network Fees on OTT Providers

(Reuters) - South Korea's top Internet provider, KT Corp plans to charge data-heavy content providers such as Google's Youtube and Internet-enabled TV service operators to subsidize costly network upgrades, a KT executive said on Thursday.

KT fired its first salvo on "free riding" Internet services earlier this month by blocking access to certain TV applications offered by Samsung Electronics Co, the top manufacturer of Internet TVs, with the burgeoning TV industry set to generate profits from advertising and applications at the expense of heavy investments by network operators.

"We want to set a rule that we can equally apply to every platform operator that offers data-heavy content as those services threaten to black out our network. They should pay for using our network," Kim Taehwan, vice president of KT's smart network policy task force, told Reuters in an interview.

"Payment could take various forms, from sharing a portion of advertisement revenues or profits to settling network usage fees. We are open to discussing that and are focusing our efforts on Internet TVs for a start before broadening our target to other data-heavy services such as Youtube."

Such moves could have wider implications for the likes of Apple and Google, which are trying to replicate their enormous success in the smartphone market in the living room by offering services such as high-quality videos, movies, games and social networking via TVs.

"Once we set a rule with Samsung, we will apply it to other Internet TV operators, be it Apple or Google," Kim said.

Apple is in talks with Canada's two biggest telecom firms about launching iTV, a device combining the features of the wildly popular iPad tablet with those of a TV set, according to Canada's Globe and Mail.

Google is also preparing revamped Google TVs through alliances with firms such as LG Electronics Inc.

Telecoms operators, under growing pressure to upgrade their networks to support increasing data traffic, have already seen free Internet phone and text message services such as Kakaotalk and BlackBerry Messenger hit steady and superbly profitable sources of income.

Hardware manufacturers like Samsung, which hopes to build on its dominance of the TV market in the Internet TV segment, argue networks should not discriminate against content or services and that applications do not cause massive traffic slowdowns.

(Reporting by Miyoung Kim; Editing by Jonathan Hopfner Reuters.com)