I recently took part in a round-table discussion in London organized by OpenCloud on the changes occurring within the telecoms landscape: how operators need to change to keep up with market dynamics, with a focus on innovation in services and service-charging.  This was in conjunction with OpenCloud’s launch of Rhino Sentinel to help operators boost service innovation.  Also as part of this event Heavy Reading (Caroline Chappell) produced a free white paper providing more insight into this topic.

The round table included:
Jo Rabin, Director at Mobile Monday Limited;
Caroline Chappell, Heavy Reading;
Sebastian Grabowski, Orange Labs, Service Platforms & Middleware Division Director;
Adam Filisinski, Orange Labs;
Jeff Gordon, CEO OpenCloud; and
myself.

As hard as the industry likes to focus on the continued top line global revenue growth, as discussed in this previous weblog article.  Evidence is mounting that the two core services of voice and messaging are becoming applications.  Free, an MVNO in France, has recently launched a flat fee of €19.99 a month for a plan that includes unlimited texts, multimedia messages and calls, a fair-usage policy of 3 GB of mobile data and free calls to 40 countries in Europe and North America, and unlimited WiFi data. This compares with €49.40 for a similar offer at Orange France’s new “Sosh” unit, which is their competitive response to Free.  Though Free have not released customer numbers, estimates indicate they’ve rapidly reached over 1 million customers.  The game is changing more rapidly than most of us would like to admit in the industry, and Free indicates its a race to the bottom on regulated services.

This article reviews some of the discussion from the OpenCloud round table.

Question 1: Comparing the telecoms landscape of today with that of 5 years ago, what do you see as being the greatest differences and what impact have these changes had? To what extent is it necessary for today’s CSP’s to change? Technologically, organizationally and in the services they offer?

Let’s think back 5 years to 2007, the year the iPhone was launched.  No, let’s start 10 years ago, in 2002 when WorldCom filed for the largest bankruptcy ever, and the VoIP hype was starting on how they would kill the telecom business.  Skype wasn’t founded until 2003.  It wasn’t until 2005 that the Economist caught onto that theme and did their infamous article: “How the internet killed the phone business: Almost-free internet phone calls herald the slow death of traditional telephony.”  Actually the most successful VoIP providers by revenue turned out to be the Cable Companies in the US which didn’t even call their VoIP service VoIP, choosing instead Digital Voice, and had a similar price plan to that of the fixed line voice incumbents.  Though they too are suffering as people turn away from fixed line telephony in favor of mobile and over the top voice services.

The reality we keep ignoring is people change very, very, slowly, this has been to the Telcos favor, BUT people’s expectations are changing thanks to Skype, Apple, Viber, Amazon, Netflix, WhatsApp, Vonage, etc.  And the risk is it reaches a tipping point, where things happen fast.  As a personal example, I still have a home phone line as part of a triple play bundle.  There’s a term called “being bundled” which means paying $150-200 per month for services I rarely use.  Once I get the FTA (Free To Air) aerial set up in the attic, we’re cutting the video and home phone cord.  Neighbors, friends, relatives are all in similar positions of working out exactly how and when to jump.  We do appear to be moving towards a tipping point in some markets.

At the end of 2011 just a few relevant figures:

• Skype is used for 700M minutes of calls per day;
• There’s 300M minutes of Skype video per day;
• Skype is roughly 20% of the international call minutes;
• Skype has nearly 100% of international consumer video call minutes, leaving operators consumer video services in the dust;
• Telia Sonera saw a drop of 22% in Christmas Eve SMS messages this year;
• Some iPhone users are reporting SMS traffic dropping to <10% once iMessage is running across their friends.  My wife’s SMS traffic has roughly halved.  Wait till WhatsApp catches on…

The numbers are finally impacting some revenues; and critically looking forward we have the greatest uncertainty in regulated service revenues (voice, video and data) in the history of this industry, as discussed in this previous weblog article.  However, it’s like boiling frog syndrome, global telecoms revenue continues to growth so the water is hot but not uncomfortable.  The challenge is if we wait any longer we’ll miss the point to jump out and end up cooked.

Question 2) What should the top issues be for Telcos given the new shape of the telecoms landscape? What role does Service innovation have to play?

Changes in Telcos are necessary; but aren’t Telcos in a constant state of change?  They always seem to be going through some kind of reorganization which means decisions can not be made, as discussed in this article.  But seriously, its critical for operators to recognized they have 3 domains in their business: IT, Network and Services

IT and Network are well understood in Telcos today, the mantra is “It must not fail.”  And this mantra impacts all decisions, even project selection.  The Services Domain is different, innovation is impossible without failure.  As a domain it spans people, processes and technology; and all are different compared to Network and IT.

Take for example operators’ approach to open innovation, they say: “Here are my APIs, here is how much they cost, I’m big you’re not, thank you and good bye.”  While APIs are about internal, partner and external service innovation.  And partner and external innovation require business development, something only the more IT-focused parts of an operator’s enterprise business  has some experience with.  For those of us on the supply side, we take business development and sales for granted, they are simply a necessity for doing business.  While for Telcos, customers have limited choice, they can not live without their mobile phone and internet access, sales / business development are simply not required in Telcos, only marketing.

Service innovation requires a different type of organization (people, process and technology), recognition that service innovation covers internal, partner and third party; and critically it requires business development and sales: a rare quantity in telcos today.  I review this in more detail in the report I’m currently writing called: “The Services Domain. Market Status, Case Studies and Strategic Analysis.”

Examining the top issues facing telcos, it all revolves around the customer:

• Customer Advocacy;
• Customer Satisfaction; and
• Customer Loyalty.

As an industry we’re loosing the customer, we’re seen as a tax on having an iPhone. Skype has a much better quality service; I find myself asking to use Skype rather than mobile as I can hold a conversation with Skype rather than simply communicating over the limited bandwidth and distortion of a mobile phone service that is being squeezed as a legacy asset by the Telco.

If customer advocacy / satisfaction / loyalty really mattered more than shareholder value we should have by now:

• Launched HD Voice;
• Opened up voice mail so you can receive it by email;
• Started are API programs the same time the rest of the world started and in the same way;
• Launched unified communication; etc.

The fatter pipes, the high penetration of smartphones and data plans means voice and messaging are now apps that can equally be delivered over the top in some markets.  So we’re left with a game of hide the margin as we bundle voice, messaging and data into a single price.  But as Free in France has shown us, this is a dangerous strategy as it ends up as a race to the bottom to win customers.

Question 3) In what ways do Telcos need to change in order to innovate competitively? What makes these key barriers so problematic? What makes “cost” a critical issue for service innovation?

The top two issues quoted around improving service innovation are Time To Market and Cost.  Both are related to the requirement of getting the whole organization to agree, across IT, network, services and marketing.  This weblog has reviewed those issues at length.

But what does it mean to get to market faster when the customers do not know you’ve arrived?  Customer awareness is critical.  Most operator websites focus on shareholders not customers.  Many operator app store have been left to rot as Apple and Android dominate.  But an operator sells much more than apps, they sell services.  There a gap in that we do not sell our services, we somehow expect customers to discover the service and the value that service can provide to them, the services domain addresses this gap.  The report “The Services Domain. Market Status, Case Studies and Strategic Analysis” reviews case studies on how operators are solving this issue.

The bottom-line is we must recognize the existence of the Service Domain to support service innovation and customer focus, it is managed differently to the Network and IT domains across people, processes and technology.