Thursday, June 19, 2008

Telco 2015

I was in Venice for a reason, to give a talk about the future of telecom companies. Here are the main points of my presentation.

Future Business Model

1. There is a trend in telecoms for new kinds of service to be developed and introduced first by enterprises or consumer-goods companies. If they succeed, the carriers then abstract the ‘middleware’ essentials and productise the result, exploiting their networking and platform operations expertise and economies of scale. We saw this with private networks leading to VPNs, and with PBXs leading to Centrex. Latterly we are seeing it with mobile services opening the door to IMS, and web-based applications leading to web-services middleware platforms.

2. Productisation of these enabling platforms will the main future revenue streams of telcos. They are sufficiently complex to set up and operate that barriers to entry for anyone else are high, and as all kinds of business migrate to virtuality, these platforms will emerge as major revenue streams.

3. An alternative carrier ‘strategy’ is to focus at the fibre and IP/MPLS transport level and extort economic rents from successful service providers such as Google, Yahoo by leveraging the operator’s monopoly of broadband access. This is anticompetitive, short-sighted, threatens to kill off Internet-based innovation and is basically unethical. The regulator will see it that way too.

Transition Strategies

1. Operators get pretty energised by the Next-Generation Network (NGN). A plethora of target architectures and target networks. They are less definitive about the next-generation organisation, based on state-of-the-art IT systems, few, highly-qualified staff and much outsourcing. Ditto for their future business models and value chain insertion.

2. The NGN transition is a business revolution not an evolution. Any carrier which tries to simply grow the NGN within its existing framework of people, processes and systems is going to spend a lot of money creating an even bigger internal mess.

3. The only way to get the benefits of the NGN, and therefore continue to be a player going forwards, is to start a new organisation which is designed from the start on the target organisational architecture, with optimised processes and flow-through automation. Migration of customers from the legacy, cash-cow telco to the new organisation will be difficult, but at least there will be something to migrate to.

An Open Ecosystem value chain

1. Many high-tech companies such as Cisco don’t do much research internally. They know that the Internet, which equates to global availability of ubiquitous high bandwidth connectivity, has created a vast uncharted market-space of new product, service and device opportunities.

2. No one company has the resources to explore this space. Venture capital allows hundreds or thousands of companies to take a new idea to market. Most fail, or succeed only modestly. A few hit the big-time, and Cisco buys them.

3. In a situation of platform-driven market-innovation (where the platforms include: IP/MPLS transport, IMS, web-services infrastructure), the next-generation telco will create an ecosystem of start-ups and entrepreneurs, making the carrier service development and service delivery platforms cost-effective for all to use. When a service begins to take-off big-time, the carrier will productise it themselves, exploiting their customer base, sales and marketing strengths and economies of scale for second-mover advantage to dominate the mass market.

This is the successful business model for the next-generation telco.