The purpose of this CXTech Week 32 2023 newsletter is to highlight, with commentary, some of the news stories in CXTech this week. What is CXTech? The C stands for Connectivity, Communications, Collaboration, Conversation, Customer; X for Experience because that’s what matters; and Tech because the focus is enablers.
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Covered this week:
- Twilio’s Q2 Revenue Jumps, losses halved. An end to the PE Vultures Circling?
- Fantasy ‘CPaaS’ M&A League
- How can Nokia Leapfrog Ericsson in Programmable Telecoms?
- Cisco Acquires Working Group Two for $150M
- Generative AI: what’s in it for me?
- People, Gossip, and Frivolous Stuff
Twilio’s Q2 Revenue Jumps, losses halved. An end to the PE (Private Equity) Vultures Circling?
Wow, this article is generating some discussion and lots of direct messages. I’ve updated to likely make everyone equally annoyed by the analysis.
Twilio reported Q2 2023 revenues of $1.04B, and earnings of 54c per share, both above analyst expectations. Earnings were 86% above analyst estimates! The big shift was losses dropping from $322.8 million, or $1.77 a share, in the year-ago quarter, to $166.2 million, or 91 cents a share.
There have been lay offs and divestitures, which accounts for over half that improvement, and Twilio’s cost of goods appear to be improving as well. Whether this is the result of a one off favorable prepay deal, or a systematic improvement by pumping traffic through a lower cost route is yet to be determined.
Twilio’s gross margin for the quarter ending March 31, 2023 was 49%. For most aggregators / CPaaS gross margins are 15-25%, less than half that. Most aggregators live on a knife edge between what the carrier charges and what the customer will pay for SMS. Not having direct connection is a serious disadvantage, see my commentary on Ericsson, Vonage and Nokia.
Twilio has a range of services it owns like Flex, which have a far higher margin than SMS aggregation. Though A2P SMS related services are the largest contribution to Twilio’s revenues.
I’ve been digging into the US A2P market in a little more detail, it is complex! For example, trying to understand what Twilio got for its $750M investment. Remember Syniverse just announced a round of layoffs and organizational consolidation. At present it appears Twilio has control over one of its suppliers, enough control to avoid Syniverse being bought which is a significant risk for Twilio. Hence the situation Syniverse finds itself in, squeezed by the carriers, and unable to move.
Prepay is a common method used in the industry, and with some A2P aggregators I’ve heard the prepayments can find their way into marketing cost than cost of goods. The more I dig, the more complex this market gets. I need to keep on digging, finding the cost of goods for an A2P SMS shouldn’t be so difficult!
Clearly TCR is growing Kaleyra’s revenues and raising their margins, some aggregators refer to it as a monopoly and a license to print money. Though the accusation of monopolistic practices could be made more widely across the US market. When other aggregators claim to be the European or Asian version of Twilio, then must realize Twilio is in quite a unique position in the US market, and this is a market that is very hard to break into as Route Mobile shared.
Twilio still has the carriers behind Syniverse and TCR looking on jealousy, at least the PE Vultures may have backed off for a while. Though with a stock price of $60 when only 2 years ago it was $400, the PE vultures will never be too far away. However, $400 was during the pandemic when success was magnified, just like Zoom. Zoom’s change of heart on remote working shows they are perhaps also feeling the PE vulture circling?
I think the complexity of determining something as simple as what is an A2P SMS cost of goods; combined with the struggle Route Mobile faced in entering the US market, creates conditions where like the rest of the telecoms industry Americans seem to be paying a premium in both cash and time (SPAM).
Fantasy ‘CPaaS’ M&A League
More on the Fantasy ‘CPaaS’ M&A League given Twilio’s Q2 results. Twilio’s ‘Syniverse Shenanigans’ are unlikely to be repeated. The lower stock price and the more equitable voting rights make deals like that unlikely.
Every programmable communications company: that includes UCaaS and CCaaS providers, as well as all the messaging campaign providers, CPaaS, aggregators, etc. would like to see an end to the TCR (The Campaign Registry). For as long as the TCR has existed SMS SPAM has increased. Even through Google Messages filters I’m seeing more smishing. The latest one was today asking, “Hey, my partner just drove past 525 Allison Ave…”
The claim is Kaleyra is the ‘custodian” of TCR, but who built it? Likely they used a contract development firm. But who knows what backdoors could exist for this critical US infrastructure. I could imagine Twilio would happily buy the TCR to close it down, like they did with zipwhip, covered in CXTech Week 44 2022. Though it only takes one carrier to move away from using the TCR, and focus on really KYC (Know Your Customer), and TCR would become sidelined. So why pay when time may tell. Twilio buying the TCR is not certain, even though the business case is clear.
Twilio is delivering more and more SMS internationally, the US has quite a few global brands. Twilio needs a SMS aggregator with a great international footprint and lower cost of operations, so it can focus on the rest of its business. Tyntec has been up for sale for three years, I mentioned before its revenue concentration has made it unattractive to mid-tier aggregators. But for an elephant like Twilio, they will be unphased by that.
I recently heard tyntec had a deal with Soprano Design when they first started the sales process, which we’ve mentioned before in the Fantasy ‘CPaaS’ M&A League is an interesting match, or perhaps GMS and Soprano Design as an alternative. A rumor was tyntec were going to be taken public by Evolving Systems. Evolving Systems provide value added services to carriers. Going public would have been interesting, tyntec could have acted as a nucleus for aggregator consolidation. A bit like what Link Mobility tried to do, but led by people who understand the business and technology, rather than bankers creating a lifetime integration headache.
I know Sinch was also looking at the network / technology of tyntec, rather than the whole business. Last year tyntec and GMS seemed to be getting close, but then something happened.
I understand GMS is a significant supplier to Twilio. Twilio’s vision is to be a software company, but its dependency on all this “overly complex, even working out the cost of goods is hard” telecoms stuff keeps pulling it back from the vision. With another good quarter, and investors feeling more positive about a soft-landing for the US economy. The timing could be good for Twilio to buy tyntec or GMS, and consolidate it all into the telecom division with lower cost of operations, so the software division and management’s time can focus on growing revenues at 30% once more.
Using Linkedin’s analytics, this article has 3k impressions in less than 3 days, and Ericsson is more interested in this article than Nokia.
I did a Mid Year Review, with the subtitle, The BS in Telecoms in Too Damn High. I covered some of the comforting lies the industry. Examples of painful truths the industry will hear at TADSummit include:
- Developer centric telco is an oxymoron, a telco needs partners (e.g. Ideamart and Dialog Axiata).
- CAMARA is repeating the failures of OneAPI. A standardized API can not respond to customers’ needs fast enough. No successful ‘CPaaS’ uses a standard API.
- US Telcos are trying to kill one of the most successful recent telecom innovation, A2P SMS, with TCR, backroom deals, etc.. As evidence, the Route Mobile CEO shared his 6 year struggle to break into the US market.
- On demand Network Quality of Service was done 20 years ago in PCMM (Packet Cable Multimedia). Developers want internet access with no APIs in the way. Network as a Service (NaaS) is a different service (NNI, Network Network Interface), as we covered at TADSummit in 2021. Here’s an example of a comforting lie on is topic, “Telcos, everyone agrees that the future of enterprise telco lies in network APIs” from Danielle Royson.
If you’re giving money to people to tell you comforting lies, then you’re likely to disappear from view like OneAPI. Business success comes some understanding the painful truths, and building them into your plans. Like life, business built to last is hard!
Now back to my advice to Nokia and other vendors looking to copy Ericsson:
In the existing programmable telecom business Vonage Communication Platform is competitive with carriers and their existing partners, and its cost base it too high to be competitive in the long term. Hence VCP is really for the ‘new’ CAMARA APIs. I focus on 2, the QoS API, and the broader category of Fraud and Identity.
Don’t follow CAMARA’s on demand QoS and the deluded use cases. Deliver specific solutions telcos can sell today, NaaS (Network as a Service). A package for converged telcos across fixed and mobile, local cloud services, and enterprise data centers. Package for mobile networks, local cloud services, and enterprise data centers.
Network-as-a-service (NaaS) helps enterprises obtain the IT optimization benefits of modern cloud computing and broadband transport across fixed and mobile networks. The current market size is $8-12B depending on how you measure it, with a CAGR of 15-20% over the next 5 years.
Network as a Service (NaaS) is a mature existing market, it was covered at TADSummit in 2021 by Liang Dong of Epsilon (now KT) https://blog.tadsummit.com/2021/05/24/delivering-the-future-of-networking-with-hyper-scalable-connectivity-liang-dong-epsilon/. NaaS can be extended to Mobile broadband, but that’s a network:network interface (NNI) than API.
Avoid Ericsson’s mistakes of competing with customers, repeating the mistakes of OneAPI, competing in a segment that’s focused on lower of cost operations. Rather focus on a specific market segment and help telcos execute. KT has a good solution with Epsilon, who presented at TADSummit on NaaS. Other carriers need to renew from legacy network management platforms to something like Epsilon. Nokia can be a perfect fit.
Fraud and Identity is a large, growing and critically important category. My purpose is to give some insight into the complexity of this market. Claiming you have an standardize API from CAMARA clearly shows there is no Fraud and Identity business solution.
Fraud and Identity can not sit as some special telco vertical, it’s part of a much broader and far greater online Fraud and Identity market. At TADSummit we have several presentations across this segment, where you can have insightful conversations to create viable strategies, not API-based belief strategies.
Congratulations to the Working Group Two team! We’ve followed WG2 since before Werner in Telenor came to TADSummit in 2015. This is an impressive endorsement of open source in telecoms by Cisco. Open Source is a core theme at TADSummit, with many impressive open source based companies involved, including sponsors Jambonz, SIPhub, and TelecomsXchange.
Here are some of WG2’s TADSummit presentations from over the years:
- 2021: A multi sided marketplace platform for telco enabled products, Werner Eriksen
- 2020: Interview with, Erlend Prestgard, the CEO of WG2.
- 2019: Some (Surprising) Discoveries in Applying the as-a-service model in Running a Mobile Core Network, by Werner Eriksen, CTO Working Group Two (WG2).
- 2018: From Lego to Plasticine. Molding a platform for product development.
- 2016: A report from the kitchen; running a mobile core in the cloud, samples served.
- 2015: Building a Programmable Telco Core Network.
WG2 was spun out of, and backed by, Norway’s Telenor in collaboration with U.S. network gear giant Cisco Systems. The acquisition feels pre-ordained.
Telenor held a 44.6 per cent share in the company, which offers mobile operators a cloud-based core network designed to increase product innovation and reduce time to market for authentication, provisioning, voice, messaging and data services.
I saw the title and was about to skip over it, when I looked at the picture and thought, ‘I recognize that person!’
Sami Makelainen, Research Affiliate at the Institute for the Future, and AI expert to speak at Telstra Wholesale Business Connect 23 on what the future of AI might hold for businesses.
Sami has in his title, Pragmatist. So like my article last week about Rob Pickering in CXTech Week 31 2023, when Sami speaks, I listen.
Sami gave a TADSummit keynote in 2021 providing an excellent review of the systemic failures being created given the increasing coupling and interactions of communication systems. I highly recommend reviewing the AI Incident Database (AIID), it makes for interesting reading.
Like WG2 and Sami, TADSummit provides a platform and meeting place for those headed for success. The innovators and original thinkers in programmable telecoms. Check out the TADSummit Agenda and register. No comforting lies, only painful truths, and no BS!
People, Gossip, and Frivolous Stuff
Randall Schwartz is now Chief Executive Officer at Rural Telecommunications of America (RTA). I’ve known Randall for over a decade, since his time at Wireless 20/20.