Whilst I’m here at VON Europe this week soaking up the Swedish sunshine, I’d like to share with you how I go about filtering the deluge of presentations and information and look for significant events.
Loosely speaking, I’ve got a metaphorical set of antennae on my head hunting for the elusive “Telco 2.0”. What does this mean? Anything that blows apart the traditional Telco 1.0 vertical silo business model where connectivity and service are integrated, with cross-subsidy and strict exclusion of rival services. There’s no fungibility to the connectivity, little “option value” on offer, and a high emphasis on parasitical, arbitrage or negative-sum business models (e.g. fixed-mobile displacement). If in doubt, regulate profit into existence.
My “Telco 2.0” sensor goes haywire whenever I sense any of the following:
You’ll note that wooly words around “VoIP” and “convergence” don’t make the list here at Telepocalypse central. Why? Because they are often used to simultaneously describe backwards-looking “Telco 1.0” vertical integration advances (e.g. single bill, Vonage-style PSTN arbitrage) as well as “Telco 2.0” business model advances. I also don’t have a position on “open” vs. “closed”; they’re just means to an end.
As a classic example, I had a delightful brainstorm earlier today with Howard Thaw of iotum. [Disclosure: I’ve been asked to be an advisor. Deduce financial interest.] They are a poster-child for Telco 2.0 at the application layer with their “relevance-routed” phone calls and messaging. This means clever features you never had in the past. Howard is moderating the panel I’m on tomorrow. They could be “the next Google”, in that phone calls are “digital social gestures” (thanks, danah) that look uncannily like Web page links; and “relevance” looks rather like Google’s PageRank; and the self-interest behavior in calling and linking descibes a vast sparse matrix susceptible to some heavyweight matematical magic to recover the abolute “interest” or “relevance” of the web pages or callers. It’s still early days, and iotum are stil at the AltaVista stage of evolution of their industry (i.e. semi-automated, semi-intelligent). But the “I’m feeling lucky” phone call will be made some day soon, and you’ll be connected to the next person who you really need to talk to.
As I type I sit at the back of the room for the presentation by Claire Papponeau of France Telecom. She gave a succinct and lucid pitch for the telco quintuple-play (local, long distance, mobile, TV, Internet). I’m too polite to point out that most telcos have been pushing this for a few years and the stock prices are flat-lined, and her own presentation shows the customers leaving incumbents in droves for new entrants. Anyhow she described their “Family talk” product, which lets you make “free” calls between fixed and mobile within your family. I actually quite like this, because innovation in pricing that better aligns with the perceived value is important in creating sustainable models for funding networks. Maybe not “Telco 2.0”, but steps in the right direction. Single bill, on the other hand, doesn’t have much consumer value, despite what the focus groups tell you. (Watch what they do, not what they say. Offer them a dollar off their service and they’ll break the bill apart and churn.)
Following this was a great contrast on the panel session. Espen Fjogstad of Telio gave once of the most simple and accessible descriptions on the evlution of the industry and the evolution to “Telco 2.0”. (They get it!) Immediately following is Karl Erik Stahl of Intertex Data with SIP-aware firewalls. This is a transitional (“Telco 1.2”) world, where one vendor sells you the firewall snake oil that damanges the end-to-end nature of the network, and then you have to buy yet more functionality to undo the damage. In the meantime, Skype and friends on the open, unecumbered Internet just go on growing because they just work. The industry is packed with session border controllers, media gateways, proxies and relays that just undo the constrictions set up somewhere else in the network, usually with the aim of generating a billable event somewhere. This is the house of cards you don’t want your pension money invested in.
We need transitional technology, and Kark Erik isn’t pitching something stupid. We need to have a path from “here” to “there”. But be aware of what you’re buying into, and whether the vendor has a road map beyond “Telco 1.1” and “Telco 1.2” without descent into some mumbling evasive stuff. You’re probably being driven towards a cliff edge.
As a final example, watch out for “fixed-mobile convergence”. This phrase is used in two mutually incompatible ways, one “Telco 1.0”, and the other “Telco 2.0”. The former means arbitrage of expensive cellular spectrum costs and substitution with cheap parasitical back-haul. This benefits the supplier, but not the consumer (at least not directly). The product is still basically the same, bar maybe some improved in-building coverage (a secondary issue here in densely-populated western Europe.) The “Telco 2.0” case would involve exercising some of the option value of the dumb pipe into the home, and deploying always-on features like presence and push that don’t technologically scale well in the capacity-constrained cellular world.
So to wrap up, if it involves money coming from the “postage and packing” from some kind of metered minute or message, it’s an endangered business model and you should be skeptical about everyone along the value chain. Everything else is an experiment to find new business models. Many will fail, but the survivors will be the future of the industry. Some of those winners are already here at VON, many aren’t born yet. The trick is to know what you’re looking at and to get beyond the confident marketing gloss.
UPDATE: Another way of putting it:
Posted by Martin Geddes at 03:45 PM“Telco 2.0” defines any business model where connectivity is supported by a sustainable economic model, assuming an all-IP world where choice of applications, devices and platforms is entirely driven by user preference.
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Hi Martin,
I blogged your "Telco 2.0 sensor haywire" criteria in the opening pages of my new blog, www.metronano.com, which launches my new community communications solutions company, MetroNanoNet.
I think that MetroNanoNet ought to set off your sensors.
* We keep sales and marketing costs down by selling to communities, not individual subscribers. We give them incentives to organize into more efficient groups, instead of competing to gain individual subscribers.
* We view broadband access as a fundamental commodity that enables other value-added services (the goal is to get connected as efficiently as possible) - then move all kinds of applications over the pipes.
* We bring in a fat pipe (satellite or landline) to a community and use WiMAX / Wi Fi mesh LANs to share bandwidth as efficiently as possible.
* We keep support costs down by providing on-line support tools and training local support for hands-on-help.
* We enable local content and styling by way of community websites with finish out tailored by locals.
I can't think of a cheaper way to provide connectivity...can you?
My goal - any neighborhood or community that wants affordable connectivity can have it - they just have to do some of the work themselves ...
Posted by: at May 27, 2006 08:10 PMJohn only explains why the silo's of vertically integrated Telco's are disappearing anyhow: wholesalers for bandwidth like his company are supplying the pipes. Wholesalers hardly need marketing & sales people. They need to be good at building & running networks at the lowest cost possible. That's their expertise and one of the reasons even those old Telco's use a lot of independent wholesalers to cross the globe for voice services (lots of IP inside, but the end-users are not aware at their level, while with with Skype/MSN/game chatting you definitely are).
But wholesale is not enough: to get to retail services we need other parties as well and those need more marketing than ever. 10 years ago, in a think-tank group for Ben Verwaaijen (BT now, KPN then!) I defined an alternative together with colleague of mine: split our incumbent KPN and reduce the manpower for transport/wholesale drastically and leave only room for more in the retail & application parts. The lay-offs we envisaged nobody dared to present to higher management at the time (but Ben's successor at KPN, is now laying off those numbers in people exactly as we predicted).
So Martin's Telco 2.0 is happening anyhow, but by a mixture of business models, with wholesale parts inside vertically integrated incumbents buying pipes from other, specialised wholesalers too. Setting up a single, commonly owned transport company is no longer possible, the former government owned infrastructures have long been privatised and there's no way back on this road once taken..
Overall the trend is clear: traditional Telco industry is still losing more turnover by commodisation of basic services than gain by new ones like the more glamorous content ones (IP TV etc..). It more and more resembles the IT-industry: very high complexity, but commoditised anyway. Bandwidth and processing are to be wasted because they lost scarcity. Telco bashing will not help counter this industry trend, they are not the guilty ones.